Skip to content


Commissioner of Income-tax Vs. Gopi Chand B. Tholia - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference No. 22 of 1970
Judge
Reported in(1980)17CTR(Raj)128; [1980]125ITR611(Raj); 1980(13)WLN550
ActsIndian Income Tax Act, 1922 - Sections 25A, 25A(1) and 34 ; Income Tax Act, 1961 - Sections 171, 171(1) to (5) and 297(2)
AppellantCommissioner of Income-tax
RespondentGopi Chand B. Tholia
Appellant Advocate S.M. Mehta, Adv.
Respondent Advocate H.P. Gupta and; N.K. Jain, Advs.
Excerpt:
.....under section 34 of the old act, for the assessment year ending on march 31, 1962 or any earlier year, the assessment for that year '(shall be made in accordance with the procedure specified in this (new) act.';in making the assessment for the year 1960-61 on the basis of the returns of income filed after the commencement of the new act, the assessing authority had no option but to make the assessment in accordance with the procedure prescribed in the new act including the procedure specified in sub-sections (1) to (5) of section 171 of that act.;if the partial partition is held to have taken place on a date during the previous year, the total income of the joint family upto that date according to clause (a) of sub-section (4) of section 171, shall be assessed as if no partition had..........a reference under section 256(1), income-tax act, 1961 (hereinafter called 'the new act'), by the appellate tribunal, delhi bench a, raising for decision by this court two questions of law which have been formulated by the tribunal as follows : ' 1. whether, on the facts and circumstances of the case, the income-tax appellate tribunal was right in holding that the assessee was entitled to an order under section 25a of the indian income-tax act, 1922, recognising its claim for partition with effect from january 3, 1958 2. whether, on the facts and in the circumstances of the case, the appellate tribunal erred in law in accepting the claim of partition of the family with effect from january 3, 1958, and in consequence thereof in cancelling the assessment made under section 143(3) of the.....
Judgment:

Sidhu. J,

1. This is a reference under Section 256(1), Income-tax Act, 1961 (hereinafter called 'the new Act'), by the Appellate Tribunal, Delhi Bench A, raising for decision by this court two questions of law which have been formulated by the Tribunal as follows :

' 1. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the assessee was entitled to an order under Section 25A of the Indian Income-tax Act, 1922, recognising its claim for partition with effect from January 3, 1958

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in accepting the claim of partition of the family with effect from January 3, 1958, and in consequence thereof in cancelling the assessment made under Section 143(3) of the Income-tax Act, 1961, for the assessment year 1960-61 '

2. The facts as stated by the Tribunal in its statement of the case and otherwise appearing on the record may be recapitulated here. M/s. Gopi Chand B. Tholia, Jaipur, was assessed as HUF until and for the assessment year 1959-60 relating to the previous year ending on Diwali 1958. At the time of making the said assessment, the assessee claimed that partition had already taken place with effect from January 3, 1958. The assessee made an application under s, 25A of the Indian I.T. Act, 1922 (hereinafter called ' the old Act '), for an order recording the alleged partition. The ITO rejected this application and assessed the family as HUF.

3. In due course, the matter of making the assessment for the assessment year 1960-61, relating to the previous year ending on Diwali, 1959, came up before the ITO. The assessee filed a return showing its income as 'nil' with an explanatory note that since there was a total partition under an award, dated December 27, 1957, taking effect from January 3, 1958, there was no question of accrual of any income to the family during the previousyear ending on Diwali, 1959. The assessee made two applications, one on August 22, 1964, and the other on September 26, 1964, requesting the ITO to pass an order under Section 25A of the old Act recording total partition with effect from January 3, 1958. After enquiring into the matter, the ITO recorded his findings which may be enumerated as follows :

(i) Partition had taken place in respect of the entire property except the Tholia Garden at Jaipur which was subsequently sold on November 17, 1960.

(ii) Mutation of names in terms of the partition had not, however, been sanctioned during the previous year ending on Diwali, 1959. It was noticed in this context that the property in Bombay which had been allotted to Kumud Chand had not been mutated in his name till January 5, 1962.

(iii) Smt. Rattan Bai, widow of Harak Chand, challenged the partition by way of a suit filed in the Calcutta High Court on July 1, 1958. The suit was partly decreed with a declaration that Smt. Rattan Bai was entitled to a share in the family properties. In view of the said decree, there was a fresh agreement between the members of the family on February 9, 1960, whereby Kumud Chand surrendered the Jaipur property, known as Shanti Bhawan, to Rattan Bai and, in addition, agreed to pay to her Rs. 176 per mensem as maintenance.

(iv) In view of these findings, it could not be held that partition by metes and bounds had taken place during the previous year ending on Diwali, 1959.

4. Consequently, the ITO passed an order, dated March 19, 1965, rejecting the assessee's application under Section 25A of the old Act. By a separate order of even date, he assessed the HUF on a total income of Rs. 1,37,600 for the assessment year 1960-61, corresponding to the accounting year ending on Diwali, 1959.

5. The assessee challenged both these orders and filed two separate appeals from them. The appeal from the order under Section 25A of the old Act, which was registered by the AAC as No. 1207/65-66, was decided by him on September 13, 1966. He reversed the order of the ITO holding that:

(i) The partition took place with effect from the date (i.e., January 3, 1958) when the partition award was registered with the Sub-Registrar, Jaipur. The fact that mutation of names had not been sanctioned by the municipal authorities concerned during the relevant previous year ending on Diwali, 1959, cannot detract from the fact of partition.

(ii) Similarly, the fact that Tholia Garden, Jaipur, was not divided by metes and bounds among the members of the family does not affect the partition. Though Tholia Garden was not divided by metes and bounds, it was notionally divided into six equal shares. It could not be physically divided into six shares, for, as the Appellate Assistant Commissioner putit, 'solid and substantial reasons of practicability, convenience and reasonable sentiment not affecting the general bona fide intention of becoming completely separated units for all purposes '.

(iii) The agreement among the members of the family whereby Kumud Chand surrendered Shanti Bhawan, Jaipur, to Smt. Rattan Bai and agreed to pay her Rs. 175 per mensem as maintenance did not affect the overall partition among the six branches of the family.

(iv) Total partition had thus taken place with effect from January 3, 1958.

6. Thus, the AAC allowed the assessee's appeal directing the ITO to pass an order under Section 25A of the old Act. He also allowed the connected appeal arising out of the assessment order made by the ITO under Section 143(3) of the new Act, Consequently, he cancelled the assessment holding that since there was no HUF in existence throughout the previous year ending on Diwali, 1959, there was no question of accrual of any income to the family and assessment of the family as such.

7. This time it was the turn of the ITO to challenge these orders. The revenue's appeal irom the order under Section 25A of the old Act was registered by the Appellate Tribunal as I.T.A. No. 13639 of 1966-67. By its order dated May 14, 1968, the Tribunal dismissed this appeal affirming the findings of the AAC, to the effect that the assessee was entitled to an order under Section 25A of the old Act recognizing its claim for partition with effect from January 3, 1958. The other appeal registered as I.T.A. No. 13638 of 1966-67, arising out of the assessment order for the assessment year 1960-61, was also dismissed by the Tribunal by its separate order of even date.

8. The Commissioner, Rajasthan, made an application (No. 118 of 1968-69) under Section 256(1) of the new Act requiring the Appellate Tribunal to refer to this court a question, as one of law, arising out of the Tribunal's order confirming the cancellation of the assessment. The question suggested is as under :

' Whether, on the facts and circumstances of the case, the ITAT erred in law in accepting the claim of partition of the family with effect from January 3, 1958, and in consequence thereof in cancelling the assessment made under Section 143(3) of the I.T. Act, 1961, for the assessment year 1960-61?'

9. The Commissioner made another application (No. 119 of 1968-69) relating to the order passed by the Tribunal under Section 25A of the old Act. This application purports to have been made under Section 66(1) of the old Act. It invited the Tribunal to refer to this court another question which was formulated as under :

' Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the assessee wasentitled to an order Under Section 25A of the Indian I.T. Act, 1922, recognizing its claim for partition with effect from January 3, 1958 '

10. It was on these two applications of the Commissioner, Rajasthan, that the Tribunal drew up a statement of the case under Section 256(1) of the new Act and referred to this court the two questions mentioned above.

11. After hearing counsel on both sides and giving the matter our careful consideration, we find that the two questions formulated by the Appellate Tribunal for our decision have been raised on a wholly erroneous assumption that the assessment proceedings in the instant case were governed by the old Act. It will be seen from the assessment order dated March 19, 1965 (annex. B), that though it related to the assessment year 1960-61, corresponding to the accounting period which ended on Diwali, 1959, the returns of income on which it was based were filed by the assessee on November 11, 1963, and July 27, 1964, and the assessment was expressly stated to have been made under Section 143(3) of the new Act. In fact, the Appellate Tribunal also appears to have been aware of the fact that the assessment in question was made under Section 143(3) of the new Act. It will be seen that question No. 2 formulated by the Appellate Tribunal for our decision expressly states that the assessment cancelled by the AAC, which cancellation was subsequently confirmed in appeal by the Appellate Tribunal itself was made ' under Section 143(3) of the I.T. Act, 1961, for the assessment year 1960-61 '.

12. This being the admitted factual position, the assessee's claim for partition which was made before the ITO during the course of assessment proceedings in 1964 ought to have been enquired into and disposed of in accordance with the provisions of Section 171 of the new Act instead of Section 25A of the old Act. A reference to the provisions of Section 297 of the new Act which deals with 'repeals and savings' would at once make it clear that in dealing with the assessee's claim for partition under Section 25A of the old Act, the Appellate Tribunal, the AAC and the ITO completely ignored the mandatory provisions of this section. We may reproduce here the relevant provisions of this section :

' 297. Repeals and savings.--(1) The Indian Income-tax Act, 1922 (XI of 1922), is hereby repealed.

(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act),--.

(a) where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed ;

(b) where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice under Section 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in this Act;

(c) any proceeding pending on the commencement of this Act before any income-tax authority, the Appellate Tribunal or any court, by way of appeal, reference or revision, shall be continued and disposed of as if this Act had not been passed;...... '

13. A plain reading of Clause (b) would show that where a return of income is filed after the commencement of the new Act, otherwise than in pursuance of a notice under Section 34 of the old Act, for the assessment year ending on March 31, 1962, or any earlier year, the assessment for that year, ' shall be made in accordance with the procedure specified in this (new) Act. ' (Emphasis and parenthesis supplied). This quotation hardly needs any emphasis. It is couched in language emphatic enough to require compulsorily that the assessment of a person, who filed the return of income for the assessment year ending with March 31, 1962, or for any earlier year, after the commencement of the new Act, shall be made in accordance with the procedure prescribed by the new Act, notwithstanding the fact that the income required to be so assessed, accrued during a period when the old Act was still in operation.

14. The law is now well settled that Sub-section (1) of Section 25A of the old Act is purely procedural inasmuch as it only prescribes the procedure whereby the members of a family, which had hitherto been assessed in the status of an HUF, may obtain an order that they may, because of partition, be assessed as separated members. If any authority is needed on the point, reference may be made to Gowli Buddana v. CIT : [1966]60ITR293(SC) . A similar pronouncement was made by the Supreme Court in respect of the provisions of Sub-sections (1) to (5) of Section 171 of the new Act. While contrasting Sub-section (6) with Sub-sections (1) to (5) and holding that Sub-section (6) is a substantive provision, the Supreme Court held in Govinddas v. ITO : [1976]103ITR123(SC) that Sub-sections (1) to (5) of Section 171 are merely procedural in that they lay down ' the machinery for assessment of a Hindu undivided family after partition '.

15. We are, therefore, of the definite view that in making the assessment for the year 1960-61, on the basis of the returns of income filed after the commencement of the new Act, the assessing authority had no option but to make the assessment in accordance with the procedure prescribed in the new Act including the procedure specified in Sub-sections (1) to (5) of Section 171 of that Act.

16. Had the procedure prescribed in Section 25A of the old Act and Section 171 of the new Act been substantially similar, we would have perhaps eschewed the technical approach and preferred the more pragmatic course of answering the reference. Our difficulty has, however, arisen from the fact that the two procedures are so substantially different that different results will follow depending upon whether one answers the reference in accordance with the provisions of the old Act or the new Act. One material difference between the provisions of Section 25A of the old Act and Section 171 of the new Act is that unlike Section 25A, Section 171 applies not only to cases of total partition but also to cases of partial partition. Now, if, for example, it is held that Tholia Garden, Jaipur, admitted of a physical division but was not so divided until and during the making of the assessment in question, it will not be possible under the old Act to record an order of total partition with the result that the assessee shall be deemed to continue as HUF for purposes of assessment for the assessment year 1960-61. This means that the liability for the payment of the tax assessed on the income of the family deemed by a legal fiction to be HUF, would be on the property of the family (i.e., Tholia Garden alone) and not personally on the members or on any other property which at the time of accrual of income might have been joint Hindu family property, but ceased to be so by reason of the partition among the various members of the family. If, on the other hand, the procedure prescribed by Section 171 of the new Act is applied for making the assessment, it would be legally permissible to record an order of partial partition with a finding that Tholia Garden still retains the character of joint family property. In such a situation, if the partial partition is held to have taken place on a date during the previous year, the total income of the joint family up to that date according to Clause (a) of Sub-section (4) of Section 171, shall be assessed as if no partition had taken place and then according to Clause (b) of Sub-section (4) read with Sub-section (7), the liability of the members has to be apportioned in the manner specified, and in addition to the several liability of any member, another incident of such assessment is that all the members are jointly and severally liable for the entire amount of the tax assessed against the family. It is significant to note that Section 171 is silent as to the consequences, if any, flowing from a total or partial partition which, according to the finding recorded under Sub-section (3), may be held to have taken place on a date prior to the previous year, as was the claim made on behalf of the assessee in the instant case.

17. For all these reasons, we find that the reference is misplaced, being based on a wrong view of the law that the assessment is to be made in accordance with the procedure prescribed by Section 25A of the old Act. We have already held that Section 25A is inapplicable and that instead the assessment is to be made after deciding the claim made by the assessee, according to the provisions of Section 171 of the new Act. The questions raised in the reference will not help to decide the real dispute between the assessee and the department. We would accordingly decline to answer the reference.


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