1. O.P. No. 2 of 1941. As directed by the High Court in the order quoted above, I have the honor to state the following case and refer the question set out in para. 5 below for the decision of the Honourable Judges, of the High Court Under Section 66(3), Income-tax Act, 11 of 1922 (hereinafter referred to as the Act).
2. The petitioners are the receivers to the estate of the late Arunachalam Chettiar who was an assessee on the file of the Income-tax Officer, Devakottah. Their objection is to the supplemental assessment to super-tax made on them Under Section 34 for the year 1936-37 for the purpose of which the status of the assessee was taken to be that of an 'individual.' The facts are as follows: Upto and including the assessment year 1933-34 Arunachalam Chettiar and his son were assessed as constituting a Hindu undivided family. On the death of the son on 9th July 1934, the family consisted of Arunachalam Chettiar, his widowed step mother and the widowed daughter-in-law. As he was the sole surviving male member of the family, the assessment for 1934-85 was made on him as an individual and super-tax levied on that basis. On the matter coming up before the Commissioner, it was held that the status of the assessee for the assessment year 1934-35 should be taken to be that of a Hindu undivided family. Since then assessments were made on the basis that Arunachalam Chettiar represented a Hindu joint family. This continued up to 1937-38 assessment. Subsequently, however, in view of the decision of the Privy Council in the cases in Kalyani Vithaldas v. Commr. of Income-tax. Bengal and Commr. of Income-tax, Bombay Presidency & Aden v. A.P. Swami Gomadalli the Income-tax Officer considered it necessary to make a supplemental assessment Under Section 84 of the Act for 1936-37 by treating the assessee as an 'individual' and recovering the extra super-tax due. A notice Under Section 34(copy annexed marked Ex. A) was accordingly, issued to Arunachalam Chettiar, but be died on 23rd. February 1938, without making a return of income. A return of income was, however, submitted later by certain executors appointed by him under a will. The administration of the estate of the deceased passed subsequently into the hands of the receivers appointed by the Devakottah Sub-Court and further proceedings were continued in their names. They are the present petitioners. The receivers objected to the proposed; assessment on the ground that the notice Under Section 34 did not specifically state that the proceedings started were in respect of super-tax assessment, that the Privy Council decisions referred to above had no application to the case, that the proceedings started against Arunachalam Chettiar as an individual were irregular as the previous proceedings in his name had been in his capacity as manager of a Hindu undivided family and that as the Commissioner had decided in connexion with the assessment for 1934-3S that the status was that of a joint family and as circumstances had not changed since then the Income-tax Officer had no jurisdiction to change the status at that stage. The Income-tax Officer overruled these contentions holding that there was nothing illegal in the issue of the notice as Section 58 made Section 34 applicable to super-tax assessments, that there was no need to specify that the re-assessment was in respect of super-tax, that the Privy Council decisions applied to this case, that the assessments were against the same person though the present description was different in view of the subsequent interpretation of the law on the subject and that the Commissioner's decision in regard to 1934-38 assessment applied to that year alone. He accordingly made the supplemental assessment for 1936-37 treating the assessee as an individual. A copy of the assessment order in question is enclosed, marked Ex. B.
3. The petitioners appealed against the assessment and contended that Section 84 contemplated taxation of income that had escaped income-tax only and did not apply to super-tax, that the Income-tax Officer had no jurisdiction to take action Under Section 34, and that the notice Under Section 34 did not state that it was in respect of super-tax, that the proceedings had been started, that Section 34 could not be used to assess a person different from the one who had been assessed in the first instance and that for purpose of the supplemental assessment the status should be taken to be that of a Hindu undivided family. It was also pointed out that the provisions of Hindu Women's Eights to Property Act of 1937 had not been considered by the Income-tax Officer in deciding the status of the assessee. The Appellate Assistant Commissioner dismissed the appeal agreeing with the conclusions of the Income-tax Officer and holding that the case was covered by the decisions in Chotay Lal v. Commissioner of Income-tax : AIR1932All83 and Commissioner of Income-tax Bombay v. D.R. Naik : 7ITR362(Bom) . A copy of the Appellate Assistant Commissioner report is enclosed, marked Ex. C.
4. The petitioners thereupon requested my predecessor by an application Under Section 66(2) of the Act to refer a question to the High Court. As in his opinion the question propounded by the petitioners did not arise, he declined to state a case to the High Court. A copy of his order is filed, marked Ex. D.
5. On the petitioners' application (O.P. No. 2/41) to the High Court Under Section 66(3) of the Act the High Court has now directed me to refer the following question which I refer accordingly.
Whether in the circumstances of the case there has been a lawful assessment to super-tax Under Section 34, Income-tax Act.
6(1). There are only two points that arise in this case and these are: (1) Is the assessee in this case to be classed as an individual or a Hindu undivided family? (2) Are the objections taken to the proceedings Under Section 34 valid? As regards (1) the Privy Council's decisions are conclusive. As regards (2) the arguments advanced are: (a) that the proceedings were not started against the same person, (b) that the assessee in the past having been assessed as a Hindu undivided family his status continued to remain as that of a Hindu undivided family until an order is passed Under Section 25A(1). Argument (a) is untenable and is also wrong in fact. The Income-tax Officer as a matter of fact dealt with the same person both in the original and in the Section 34 proceedings. The assessee (Arunachalam Chettiar) was all along an 'individual' for the purpose of assessment to income-tax (including super-tax) from the date of the death of the last male coparcener entitled to share with him. By describing him as the head of a Hindu undivided family in any income-tax assessment made thereafter, the assessee did not become the head of the Hindu undivided family. He still remained an individual. Argument (b) is also fallacious. Section 25A(3) no doubt says that where a Hindu family is assessed as undivided it will continue to be so treated until an order Under Section 25A(1) is passed. But this applies only to a Hindu family which is so composed that it is capable of being treated as a Hindu undivided family. In the present case there was only one male member. He and the female members of the family were not capable of being treated as a Hindu undivided family for the purpose of taxation of the income assessed. Furthermore, this argument was not raised before the Appellate Assistant Commissioner. The objections taken to the legality of the Section 34 proceedings in this case thus proceed on a wrong appreciation of facts.
7. The reference in the application to the Hindu Women's Eights to Property Act, 1937, is irrelevant. That Act has no application either to the estate of the widow of the late Arunachalam Chettiar as he did not die intestate or to the widow of the last male coparcener who predeceased Arunachalam Chettiar, as he had died before the Act came into force. Further the income which is the subject-matter of the assessment is the income of the year ended 31st March 1936. That income was undoubtedly the income of the assessee Arunachalam Chettiar as he died only on 23rd February 1938, and no share or part of it could be said to belong to any of the female members of the family.
8. I submit that the question should be answered in the affirmative.
9. O.P. No. 1 of 1941.-- [This was a supplementary assessment of the assessee for the year 1937-88 treating him as an individual. In this assessment the receivers raised a further contention that the assessment should have been made Under Section 26(2) on the four ladies of the family. The opinion of the Commissioner on this point was as follows: Ed.]
As regards point 3 it has to be observed that the present case is governed by the specific provisions of Rule 24B(3) which are directly applicable to the facts of the case rather than by the general provisions of Section 26(2). Section 24B was specially enacted to meet n contingency like this and to remedy the defect pointed out by the Bombay High Court in Ellis C' Reid v. Commissioner of Income-tax, Bombay. : AIR1931Bom333 . This is a case where the death of the assessee took place after the commencement of the proceedings Under Section 34 which are similar to proceedings started Under Section 22 (2). It is submitted that where a devolution of an estate takes place on death in the course of assessment proceedings the character of the assessee is not altered, and that whatever may be the status of the legal representatives, for the purpose of assessment they represent the estate of the deceased and are assessed in the character which the deceased possessed at the time of his death. Moreover it may be added that after the death of the assessee and upto the date when the supplementary assessment was made on 28th January 1939 the widows could not be regarded as having succeeded to the business Under Section 26(2) since the estate was under the administration first of executors appointed under the will of the deceased dated 9th January 1938 and then of Receivers appointed under the orders of the Court dated 18th August 1938.
10. O.P. No. 2 of 1941.-- We agree with the Commissioner of Income-tax that there are only two points which arise on the question referred namely, (1) Is the assessee to be classed as an individual or a Hindu undivided family? and (2) Are the objections taken to the proceedings Under Section 84 of the Act valid? We also agree with the opinions expressed by the Commissioner in his statement of the case.
11. The assessee died testate on 23rd February 1938. He was a Nattukottai Chettiar and was joint with his son until the latter's death on 9th July 1984. After the death of the son the joint family consisted of Arunachalam Chettiar, his widowed step mother and his widowed daughter-in-law. Until the assessment year 1936-87 Arunachalam was assessed to income-tax as the head of an undivided Hindu family. As the result of the decision of the Privy Council in Kalyani Vithaldas v. Commr. of Income-tax. Bengal the Income-tax Officer rightly came to the conclusion that Arunachalam should be assessed as an individual, which meant that he had to pay more in super-tax. The notice was served within one year of the end of the year of assessment and therefore was within time. Before us Mr. P.R. Srinivasan has very properly conceded that the decision of the Privy Council in Kalyani Vithaldas v. Commr. of Income-tax. Bengal permitted action being taken Under Section 34 but he says that that section cannot be invoked here for two reasons. The first is that the notice Under Section 34 was issued to him as an individual, whereas he was assessed as the head of a joint family. The second is that Section 34 could not operate until an order had been passed Under Section 25A(1).
12. There is no defect in the notice which was issued to the assessee. It was addressed to him by name and it informed him that he had been 'assessed at too low a rate' which was the case. He had been assessed as the head of a joint family, whereas he should have been assessed as an individual. In Kalyani Vithaldas v. Commr. of Income-tax. Bengal the Privy Council held that under the Mitakshara law the mere existence of a wife and daughter does not render ancestral property joint and the income that of a Hindu undivided family. A mistake had been made and proper steps to correct it were taken.
13. The second contention is equally fallacious. Section 25A provides for the case where at the time of making an assessment it is claimed by or on behalf of a member of a Hindu family previously assessed as undivided, that a partition has taken place. When such a claim is made, the Income-tax Officer is required to hold an inquiry and, if he is satisfied that a separation of the members of the family (has in fact been effected and the joint property partitioned among the various members, it is his duty to pass an order to that effect. When such an order is passed, the individual members are assessed on the shares of the family estate received by each of them respectively. Sub-section (3) says that where such an order has not been passed in respect of a Hindu family hitherto assessed as undivided, the family shall be deemed, for the purposes of the Act to continue to be a Hindu undivided family. Mr. Srinivasan says that until an order has been passed Under Sub-section (1) the assessee has to be assessed as the head of an undivided family. Section 25A stands entirely apart from Section 34. There has been no partition and Section 25A does not operate here. The answer to the question referred is that there was a lawful assessment to super-tax Under Section 34, Income-tax Act. The Receivers of the estate of Arunachalam will pay the costs, Rs. 250 out of the estate.
14. O.P. No. 1 of 1941.-- In view of our decision in O.P. No. 2 of 1941, the answer to the question referred must be that there was a lawful assessment to super-tax Under Section 34, Income-tax Act. It has been suggested that Section 26(2) applies, but this is obviously not so. The Receivers of the estate of the assessee will pay the costs, Rs. 250 out of the estate.