Skip to content


Goswami Brijratanlalji Maharaj Vs. Commissioner of Wealth-tax, Gujarati Ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference No. 8 of 1968
Judge
Reported in[1971]79ITR373(Guj)
ActsWealth Tax Act, 1957 - Sections 2, 3, 4, 5, 5(1), 14, 14(1), 14(2), 16(3), 16(4), 17, 17(1), 20, 20(1), 20(2) and 29(1)
AppellantGoswami Brijratanlalji Maharaj
RespondentCommissioner of Wealth-tax, Gujarati Ii
Appellant Advocate S.B. Vakil, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredGordhandas T. Mangaldas v. Commissioner of Income
Excerpt:
direct taxation - construction - sections 3, 14 (2), 17 and 20 of wealth-tax act, 1957 - assessee assessed for wealth-tax in status of hindu undivided family - before enactment of act of 1957 assessee assessed under act of 1922 - assessee filed return of income in status of hindu undivided family under section 3 of act of 1957 - whether notice issued under sections 17 and 14 (2) and assessment made in pursuance valid - notice cannot be issued under sections 17 and 14 (2) as provisions of section 20 cannot be invoked. - - section 17(1)(a) provides as follows :17. (1) if the wealth-tax officer -(a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under section 14 of his net wealth or the net wealth of any other person in respect.....divan, j.1. in this reference under the wealth-tax act, 1957 (hereinafter referred to as 'the act'), the following two question have been referred to this high court at the instance of the assessee : '1. whether, on the facts and in the circumstances of the case, the notice issued under section 17, read with section 14(2) of the wealth-tax act, 1957, and the assessment made in pursuance thereto was valid (2) whether, on the facts and in the circumstances of the case, provisions of section 20 of the wealth-tax act, 1957, were rightly attracted and the direction to re-do the assessment was in accordance with the same ?' 2. the short facts leading to this reference are that the assessee was assessed for wealth-tax in the status of hindu undivided family for the assessment year 1957-58, the.....
Judgment:

Divan, J.

1. In this reference under the Wealth-tax Act, 1957 (hereinafter referred to as 'the Act'), the following two question have been referred to this High Court at the instance of the assessee :

'1. Whether, on the facts and in the circumstances of the case, the notice issued under section 17, read with section 14(2) of the Wealth-tax Act, 1957, and the assessment made in pursuance thereto was valid

(2) Whether, on the facts and in the circumstances of the case, provisions of section 20 of the Wealth-tax Act, 1957, were rightly attracted and the direction to re-do the assessment was in accordance with the same ?'

2. The short facts leading to this reference are that the assessee was assessed for wealth-tax in the status of Hindu undivided family for the assessment year 1957-58, the relevant valuation date being November 2, 1956. Before the enactment of the Act, which came into force from April 1, 1957, the assessee was being assessed to tax under the Indian Income-tax Act, 1922, in the status of an Hindu undivided family. For assessment year 1955-56, the assessee had claimed that there was disruption of the family, but this claim was rejected by the Income-tax Officer under section 25A of the Indian Income-tax Act, 1922. A similar application was made in the income-tax proceedings in respect of the assessment year 1957-58, but again that application was rejected by the Income-tax Officer. For the assessment year 1957-58, the assessee had filed a return of income in the status of 'Hindu undivided family' under section 3 of the Wealth-tax Act, 1957; the Act was made applicable from assessment year 1957-58. The assessee did not file any return of net wealth under section 14(1) of the Act; and, thereafter, the Wealth-tax Officer started proceedings under section 14(2) read with section 17 of the Act. The assessee filed a return of net wealth returning the net wealth as 'nil' and the Contention on behalf of the assessee was that there was no Hindu undivided family on the relevant valuation date and, therefore, there was no net wealth to be assessed in the hands of such Hindu undivided family. It was urged in this connection that the severance of status amongst the members of the Hindu undivided family had taken place on Aso Vad 30 of S. Y. 2010, i.e., two years prior to the valuation date of November 2, 1956. On the same ground the notice issued under section 17 read with section 14(2) was also challenged. The Wealth-tax Officer rejected both the contentions and he computed the net wealth of the assessee at Rs. 28,09,291 and raised a demand against the assessee. Against this decision of the Wealth-tax Officer, there was an appeal to the Appellate Assistant Commissioner, and it was contended that the notice under section 17 was defective and invalid. It was further contended that a complete partition of the Hindu undivided family had taken place at the end of S. Y. 2010 and since that was a valid partition under Hindu law, irrespective of the provisions of the Income-tax Act, no assessment proceedings could be taken against the Hindu undivided family which had ceased to exist when the notice under section 17 was issued in the name of the family. It was further contended before the Appellate Assistant Commissioner that section 20 of the Act applies only to a case where partition takes place after April 1, 1957, the date on which the Wealth-tax Act came into operation. It was further contended before the Appellate Assistant Commissioner that when the assessee had mentioned in the return that the Hindu undivided family had been disrupted at the end of S. Y. 2010, the Wealth-tax Officer was precluded from passing any order under section 16(3) unless he made a separate order under section 20(2) refusing the claim of partition. The Appellate Assistant Commissioner rejected the first three contentions of the assessee and came to the conclusion that in the light of the provisions of Hindu law, there was a severance of joint status amongst the members of the family on Aso Vad 30, S. Y. 2010, i.e., on October 2, 1954. The provision of section 20, according to the Appellate Assistant Commissioner, would automatically come into operation and that the Wealth-tax Officer had validly started proceedings under section 17 read with section 14(2) of the Act. The Appellate Assistant Commissioner, however, held that it was obligatory on the Wealth-tax Officer to pass an order under section 20(2) before proceeding with the assessment against the assessee; and he, therefore set aside the entire assessment and directed the Wealth-tax Officer to pass an order under section 20(2) and then compute the net wealth for levy of tax under section 16(3) of the Act.

3. There was further appeal to the Tribunal and the grounds similar to the grounds which were urged before the Appellate Assistant Commissioner were urged before the Tribunal on behalf of the assessee. The Tribunal rejected the contentions of the assessee and agreed with the view of the Appellate Assistant Commissioner that since the Wealth-tax Officer had not passed any order as contemplated by section 20(2), the assessment had to be set aside and the Tribunal held that the direction given by the Appellate Assistant Commissioner was proper. Thereafter, at the instance of the assessee, the above two questions have been referred to us.

4. In order to appreciate the arguments advanced before us, it would be necessary to refer to the relevant provisions of the Wealth-tax Act. Under section 3, which is the charging section, subject to the other provisions contained in the Act, there shall be charged for every assessment year commencing on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule Section 2 is a definition section and under section 2(c)(i), 'assessee' means a person by whom wealth-tax or any other sum of money is payable under the Act and includes every person in respect of whom any proceeding under the Act has been taken for the determination of wealth-tax payable by him or by any other person or the amount of refund due to him or such other person. Under section 2(m), 'net wealth' means the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value of all the debts owed by the debts owed by the assessee on the valuation date. The rest of section 2(m) is not relevant for the purpose of this judgment. Section 4 provides for certain items of property which are to be included in the net wealth of an individual while computing his net wealth for the purposes of the Act. It is to be noted that section 4 deals only with the case of an individual and not with the case of a Hindu undivided family or a company, though section 3, which is the charging section, provides that wealth-tax is to be charged on the net wealth of every individual, Hindu undivided family and company. Section 5 deals with exemptions in respect of certain assets and that section deals not only with individuals but with all assessees. It says that wealth-tax shall not be payable by an assessee in respect of the assets set out in the rest of the section and such assets shall not be included in the net wealth of the assessee. Sub-sections (1) and (2) of section 5 deal with the assets which are not be included, and sub-section (3) says that notwithstanding anything contained in sub-section (1) wealth-tax shall be payable by an assessee in respect of the assets referred to therein. Under section 5(1)(ii), the interest of the assessee in the coparcenary property of any Hindu undivided family of which he is a member is not to be included in the net wealth of that particular assessee. Section 14 of the Act provides for return of wealth and under sub-section (1), every person whose net wealth renders him liable to wealth-tax under the Act shall before the 30th day of June of the corresponding assessment year furnish the return to the Wealth-tax Officer in the prescribed form. Under Sub-section (2) of section 14, if the Wealth-tax Officer is of the opinion that any person is assessable under the Act, whether in respect of his net wealth or the net wealth of any other person, then notwithstanding anything contained in sub-section (1), he may serve a notice upon such person requiring him to furnish within such period, not being less than 30 days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner. Section 17(1)(a) provides as follows :

'17. (1) If the Wealth-tax Officer -

(a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under section 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped assessment for that year, whether by reason of under-assessment or assessment at too low a rate or otherwise;......

he may, in cases falling under clause (a) at any time within eight years... serve on such person a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that sub-section.'

5. Section 20 of the Act provides as follows :

'20. (1) Where, at the time of making an assessment, it is brought to the notice of the Wealth-tax Officer that a partition has taken place among the members of a Hindu undivided family, and the Wealth-tax Officer, after inquiry, is satisfied that the joint family property has been partitioned as a whole among the various members or groups of members in definite portions he shall record an order to that effect and shall make assessments on the net wealth of the undivided family as such for the assessment year or 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 or group of members shall be liable jointly and severally for the tax assessed on the net wealth of the joint family as such.

(2) Where the Wealth-tax Officer is not so satisfied, he may, by order, declare that such family shall be deemed for the purposes of this Act to continue to be a Hindu undivided family liable to be assessed as such.'

6. We may point out that with certain differences, section 20 of the Act is in pari materia with the provisions of section 25A of the Indian Income-tax Act, 1922. Section 25A provided as follows :

'25A. Assessment after partition of a Hindu undivided family. - (1) 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 : Provided that no such order shall be recorded until notices of the inquiry have been served on all the members of the family.'

7. The material words on which there is departure between the two sections is that section 25A of the Indian Income-tax Act, 1922, contemplated that a claim should be made by or on behalf of any member of the Hindu undivided family 'hitherto assessed as undivided' that a separation had taken place among the members and then the inquiry contemplated by section 25A(1) was to be made by the Income-tax Officer and what he was required to be satisfied about under the Indian Income-tax Act, 1922, was that the joint family property had been partitioned among the various members or groups of members in definite portions; whereas under the Wealth-tax Act, on the other hand, the words 'hitherto assessed as undivided' qualifying the words 'a Hindu undivided family' are omitted by Parliament and, further, the words 'as a whole' have been introduced in the Wealth-tax Act while dealing with the concept of partition of the property in definite portions. These are the main differences between the wordings of section 25A of the Indian Income-tax Act, 1922, and section 20(1) of the Wealth-tax Act, 1957.

8. Mr. Vakil, on behalf of the assessee, contended before us that according to the principles of Hindu law, which is the personal law of the assessee in the instant case, a mere declaration of an intention to sever the joint status of the members of a Hindu undivided family is sufficient to constitute partition and the moment such a declaration of intention is made, the joint family comes to an end and, thereafter, the members of the undivided family becomes separate in status and they hold the joint family property as tenants-in-common with definite shares in that property. He has also contended before us that the Appellate Assistant Commissioner has held in the instant case that partition as known to Hindu law had taken place in the case of this particular family at the end of S. Y. 2010. The Appellate Assistant Commissioner, according to us, has rightly pointed out relying upon a statement from the Text Book on Hindu Law by Sir Dinshah Mulla, that it is a mistake to suppose that there can be no partition until there is a division of the joint family property by metes and bounds; and the Appellate Assistant Commissioner held that within the meaning of Hindu Law there was a distinction between severance of joint status and de facto division of the property. It appears that a document of partition was prepared on December 12, 1954, and the Appellate Assistant Commissioner held that within the meaning of Hindu law there was severance of joint status on December 12, 1954. Mr. Vakil further on April 1, 1957, when the Wealth-tax Act came into force, the provisions of section 20 of the Act could not be invoked in the case of this particular assessee and, hence, there was no question of issuing of a notice to the assessee under section 17(1)(a) read with section 14(2) of the Act. He contended in this connection that if there is no Hindu undivided family in existence, the karta of that alleged family cannot be called upon to file the ret urn and it cannot be said that on behalf of that Hindu undivided family there was a failure to make a return.

9. As was contended before the Wealth-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, it was contended before us that the Wealth-tax Act could never apply to the present assessee inasmuch as nearly two years prior to the relevant date in the instant proceedings, the joint family as such had ceased to exist because of the severance of the status amongst the members of the family. In this connection, Mr. Vakil relied upon the decision of the Calcutta High Court in Srilal Bagri v. Commissioner of Wealth-tax. The Calcutta High Court in that case has held that section 20 of the Wealth-tax Act is only a machinery section directed towards assessment, where at the time the liability to pay wealth-tax arose, the family was joint but has disrupted at the time of the assessment. According to the Calcutta High Court, section 20 does not empower assessment of a Hindu undivided family which has ceased to be a Hindu undivided family prior to the relevant valuation date according to Hindu law. Where the family had never been assessed as a Hindu undivided family and a preliminary decree was passed before the valuation date, section 20, according to the Calcutta High Court, does not authorise the assessment of the members of the family as a Hindu undivided family after the preliminary decree. In that case before the Calcutta High Court, the assessment year in question was 1957-58 and a Hindu undivided family was being assessed to tax in the status of Hindu undivided family. The family was governed by the Mitakshara school of Hindu law. A suit for partition was filed in the High Court of Calcutta in 1950 and the final decree in that suit was passed on March 26, 1957. In the income-tax assessments the family had contended the Hindu undivided family had been disrupted on the passing of the preliminary decree on June 26, 1950; and no assessment could be made on the Hindu undivided family after that date. This contention had been consistently rejected by the income-tax authorities. The matter was taken right up to the Tribunal and for the assessment years 1951-52 and 1952-53, the Tribunal held that as under the preliminary decree the properties had not been partitioned in definite portions, the Hindu undivided family would be deemed to continue to exist under section 25A of the Indian Income-tax Act, 1922. After the coming into force of the Wealth-tax Act, the Wealth-tax Officer served a notice on the Hindu undivided family under section 14(2) of the Act and as no return was filed in response to the notice, the Wealth-tax Officer served notice under section 16(4) on Srilal Bagri, as the karta of the Hindu undivided family. It was contended by Srilal Bagri before the wealth-tax authorities that the Hindu undivided family had been dissolved by the preliminary decree passed in 1950, and, hence, no assessments could be made on the joint family. This contention was rejected by the Wealth-tax Officer and also by the Appellate Assistant Commissioner. The Tribunal, on further appeal also upheld the assessment on the family. On these facts, the Calcutta High Court considered the position under Hindu law regarding severance of joint status and, after considering the provisions of section 25A of the Indian Income-tax Act, 1922, and section 20 of the Wealth-tax Act proceeded to consider several cases decided under section 25A and after examining those earlier decisions observed :

'From the aforesaid judicial decisions it is manifest, therefore, that section 20 of the Wealth-tax Act, if it is in pari materia with section 25A of the Indian Income-tax Act, 1922, then it is only a machinery section and not a charging section. In that case section 20 of the Wealth-tax Act will only have application in respect of any year in which at the time of the accrual of liability, that is to say, at the time of the relevant valuation date, the family was joint but has disrupted at the time when the assessment was being made.'

10. After considering the provisions of section 5(1)(ii) of the Wealth-tax Act, the Division Bench of the Calcutta High Court proceeded to observe at page 910 of the report :

'In view of the position of Hindu law discussed above, it is apparent that after the unequivocal of intention to separate the individual member of the erstwhile Hindu undivided family will have no interest in the 'coparcenary property of the Hindu undivided of which he is a member'. The family is disrupted is disrupted after is disrupted after the expression of intention to separate and the coparcenary comes to an end. Therefore, sub-clause (ii) of section 5(1) of the Wealth-tax Act would be no bar for assessment in respect of the properties in the hands of the erstwhile members of the Hindu undivided family even though the properties have not yet been divided amongst the members in definite portions.'

11. Thereafter, in respect of section 20(2), the Division Bench observed :

'It has to be noted, however, that power or authority has been given to the Wealth-tax Officer to make the assessment on the Hindu undivided family as such including the year relevant to the previous year in which the partition has taken place, provided only, if the partition takes place on the last date of the previous year. This appears to be a significant factor. Under the scheme of the Wealth-tax Act liability arises on the net wealth of an assessee on the relevant valuation date. The relevant valuation date is the last date of the previous year. So if, on that last date a partition takes place, then what is to happen. The Act provides that, in that case, if the conditions of section 20 are satisfied the Wealth-tax Officer would make an assessment on the Hindu undivided family in respect of the property as belonging to the Hindu undivided family. That provision in the section, in our opinion, is no indication of the proposition that by these provisions authority was given to the Wealth-tax Officer to tax a Hindu undivided family as such if before the accrual of liability the family had ceased to remain joint under the provisions of Hindu law.'

12. The Division Bench of the Calcutta High Court, therefore, came to the conclusion :

'We are, therefore, of the opinion that section 20 of the Wealth-tax Act is in pari materia with section 25A of the Indian Income-tax Act, 1922. The difference in language in section 20 of the Wealth-tax Act has been necessitated due to the scheme of the Wealth-tax Act as well as the fact that this section was introduced in the main Act itself and was not introduced by an Amending Act as was done in the case of section 25A of the Indian Income-tax Act, 1922. In that view of the matter we must hold that section 20 of the Wealth-tax Act is a machinery section directed towards assessment, where at the time the liability to pay wealth-tax arose, the family was joint, but has disrupted at the time of the assessment. The section does not empower assessment of a Hindu undivided family which has ceased to be a Hindu undivided family prior to the relevant valuation date according to Hindu Law.'

13. The above quotations from the decision of the Calcutta High Court clearly point out that the following considerations weighed with the learned judge of the Calcutta High Court in arriving at the conclusions that they did :

(1) That section 20 of the Wealth-tax Act is a machinery section.

(2) That difference in language between section 20 of the Wealth-tax Act and section 25A of the Indian Income-tax Act, 1922, has been necessitated due to the scheme of the Wealth-tax Act as well as the fact that section 20 has been introduced in the main Act itself and was not introduced by an amending Act as was done in the case of section 25A of the Indian Income-tax Act, 1922.

(3) That after the unequivocal expression of intention to separate, the individual member of the erstwhile Hindu undivided family will have no interest in the coparcenary property of the Hindu undivided family of which he was a member. The family is disrupted after the expression of intention to separate and the coparcenary comes to an end. Therefore sub-clause (ii) of section 5(1) of the Wealth-tax Act would be no bar for assessment in respect of the properties in the hands of the erstwhile members of the Hindu undivided family even though the properties have not yet been divided amongst the members in definite portions.

14. In our opinion, on a close reading of section 20, it becomes clear that the Wealth-tax Officer is called upon to make an inquiry, if at the time making the assessment, it is brought to the notice of that officer that partition has taken place amongst the members of the Hindu undivided family. If after such inquiry, as is referred to in section 20(1), the Wealth-tax Officer is satisfied that the joint family property has been partitioned as a whole amongst the various members or groups of members in definite portions, he has to record an order to than effect and then he has to proceed to make assessment on the net wealth of the Hindu undivided family as provided in that sub-section. Where the Wealth-tax Officer is not so satisfied, he has to declare by an order that, under sub-section (2) of section 20, the said family shall be deemed for the purposes of the Act to have continued as Hindu undivided family, liable to be assessed as such.

15. In view of the decision of the Supreme Court in Joint Family of Udayan Chinubhai v. Commissioner of Income-tax, approving the observations of Sir John Beaumont C.J. in Gordhandas T. Mangaldas v. Commissioner of Income-tax, we are of the opinion that the words 'definite portions' occurring in section 20(1) indicate a physical division in which a member takes a particular house in which he can go and live, or a piece of land which he can cultivate or which he can sell or mortgage, or takes particular ornaments which he can wear or dispose of, and that the expression 'definite portions' is not appropriate to describe an undivided share in property where all a particular member can claim is a proportion of the income, and a division of the corpus, but where he cannot claim any definite portion of the property. We also agree that the expression 'partitioned...... in definite portions' has to be construed having regard to the nature of the property concerned. In view of this decision of the Bombay High Court, which has been approved by the Supreme Court in Joint Family of Udayan Chinubhai's case, it is clear that the Wealth-tax Officer must be satisfied at the end of the inquiry contemplated by section 20(1) that there has been a physical partition by metes and bounds amongst the different members of the family. It is significant that the words 'not previously assessed' occurring in section 25A of the Indian Income-tax Act, 1922, have been omitted by the legislature from section 20 of the Wealth-tax Act and the legislature has merely used the words 'where at the time of making an assessment'. Therefore, at any time when a Wealth-tax Officer is making the assessment, a contention is raised or is sought to be raised before him that a partition has taken place amongst the members of the Hindu undivided family, he has to enter upon an inquiry and satisfy himself whether there has been a partition by metes and bounds. If he is not so satisfied about the joint family properties having been partitioned by metes and bounds amongst the various members, he has to declare under sub-section (2) of section 20 that such family shall be deemed for the purposes of section 5(1)(ii) of the Act, the interest of any undivided family of which he is a member can be safely excluded. The words for the purposes of this Act occurring in section 20(2) would include within their ambit section 5(1)(ii) as well and so long as the satisfaction about the properties of the joint family having been partitioned by metes and bounds is not reached by the Wealth-tax Officer, he has to declare that such family for the purposes of the Act shall continue to be a Hindu undivided family liable to be assessed as such. Once such a declaration is made, even though there may be a notional partition, and even though for the purposes of Hindu law there is disruption of the joint family, for the purpose of the Wealth-tax Act the family is deemed to continue to be a Hindu undivided family liable to be assessed as such. Therefore, the undivided share or interest of an individual member of such Hindu undivided family will continue to be assessed as part of the property of the Hindu undivided family and will not be includible in the net wealth of that individual member.

16. Coming back to section 20(1), if the Wealth-tax Officer is satisfied that the joint family properties as a whole have been partitioned by metes and bounds amongst the various members or groups of members and he has recorded an order to that effect, the Wealth-tax Officer has to proceed to make an assessment; and provision has been made in sub-section (1) that, even though he arrives at the satisfaction that there has been a partition by metes and bounds, the Wealth-tax Officer will make assessment on the net wealth of the Hindu undivided family as such for the assessment year or years including the relevant previous year in which the partition has taken place, the condition being that the partition has taken place on the last date of the previous year. If the partition has taken place not on the last day of the previous year but on any earlier date, then for the assessment year relevant to the previous year, in which the petition has taken place, the joint family is not to be assessed as such but the property in the hands of the individual members will have to be assessed on the basis of the partitioned properties forming part of the net wealth of the individual members. In our opinion, the words, 'if the partition has taken place on the last day of the previous year' qualify and govern the words 'including the year relevant to the previous year in which the partition has taken place', because only if those words are held to so qualify these immediately preceding words can any proper sense be given to section 20(1). What section 20(1) in our opinion provides is that if a partition by metes and bounds has taken place on the last day of the previous year relevant to the year of assessment, the undivided family has to be assessed under the Wealth-tax Act as such in spite of the partition having taken place so far as that assessment year is concerned. If this condition of the partition having taken place on the last day of the previous year is not satisfied, then for the assessment year referable to that previous year, the Wealth-tax Officer has to treat the Hindu undivided family as completely separate. In our opinion, it is only on the basis of this interpretation which appeals to us that full effect can be given to all the provisions of section 20(1) and section 20(2). With respect to the learned judges of the Calcutta High Court we are unable to agree with their conclusions regarding the interpretation of section 20 of the Act. If full effect is to be given to section 20(2), which provides for the eventuality where the Wealth-tax Officer is not satisfied that the partition by metes and bounds has taken place and if full effect is also to be given to sub-section (1), the only possible interpretation is what has appealed to us. In view of that interpretation, we are unable to agree with the learned judges of the Calcutta High Court that section 20 of the Wealth-tax Act is directed towards assessment, where at the time the liability to pay wealth-tax arose, the family was joint but has disrupted at the time of the assessment. We are unable to agree with the learned judges of the Calcutta High Court that section 20 does not empower assessment of a Hindu undivided family which has ceased to be a Hindu undivided family prior to the relevant valuation date according to Hindu law. In our opinion, the question that has to be considered by the Wealth-tax Officer is not whether there has been a disruption in status according to notions of Hindu law but whether there has been a partition by metes and bounds and whether there has been a physical partition of properties of the Hindu undivided family amongst different members; and it is only after that test of physical partition by metes and bounds is satisfied that the necessary consequences for the purposes of assessment under the Wealth-tax Act will follow.

17. Again with respect to the learned judge of the Calcutta High Court, there can be no question whether there was prior assessment of the Hindu undivided family or not. The words of section 20(2) to the effect, 'shall be deemed for the purposes of this Act to continue to be a Hindu undivided family liable to be assessed as such' have to be read with reference to the contention raised before the Wealth-tax Officer, viz., that a partition has taken place amongst the members of the Hindu undivided family; and what sub-section (2) really provides is that, in spite of the partition in the sense of severance of joint status having taken place amongst the members of the Hindu undivided family, if the Wealth-tax Officer is not satisfied that there has been a partition by metes and bounds, even though there has been a severance of status, the family shall be deemed for the purposes of the Act to continue to be a Hindu undivided family. The words 'continue to be' in section 20(2) have, in our opinion, reference to the contention raised before the Wealth-tax Officer in the course of the assessment proceedings and has no reference to the question whether there was a previous assessment or not. We are unable to agree with this particular conclusion of the learned judges of the Calcutta High Court.

18. Mr. Vakil, on behalf of the assessee, contended that the words, 'at the time of making an assessment', occurring in section 20(1), indicate that there must be valid assessment proceedings before the Wealth-tax Officer; and he contended in this connection that the notice under section 17(1) read with section 14(2) being invalid, there was no valid assessment proceeding and, therefore, section 20 cannot be invoked at all. This contention of Mr. Vakil must be rejected because the basis of a notice under section 17 is that the Wealth-tax Officer must have reason to believe that by reason of failure on the part of the Hindu undivided family to make a return, under section 20, of the net wealth of the Hindu undivided family, the net wealth chargeable to tax has escaped assessment for that year. It cannot, therefore, be said that the Wealth-tax Officer can have no reason to believe that the partition which has taken place is merely a partition by severance of status as distinguished from partition by metes and bounds. If the Wealth-tax Officer is not satisfied as indicated in section 20(1), then it necessarily follows that the assessment proceedings against the Hindu undivided family were valid and the karta of that undivided family was rightly called upon to file the return on behalf of the Hindu undivided family.

19. In view of the above discussion, we answer the questions as follows :

Question No. 1 : In the affirmative. The notice as well asthe assessment made in pursuance thereofwas valid.Question No. 2 : In the affirmative. The provisions ofsection 20 were rightly attracted and thedirection by the Appellate Assistant Commissionerto reassess was in accordance withthe provisions of section 20(2) of the Act.

The assessee will pay the costs of this reference to the Commissioner of Wealth-tax.

20. In this case after the above judgment was delivered, the learned advocate for the assessee has applied for leave to appeal to the Supreme Court under section 29(1) of the Wealth-tax Act and he prays for a certificate from this court that this is a fit case for appeal to the Supreme Court. In view of the decision of the Calcutta High Court referred to above with which we have been unable to agree, it appears to us that this is a fit case for appeal to the Supreme Court. Certificate under section 29(1) is accordingly granted.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //