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G. Krishnaswami Naidu Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 330 of 1966 (Reference No. 90 of 1966)
Judge
Reported in[1973]89ITR203(Mad)
ActsIncome Tax Act, 1922 - Sections 28(1)
AppellantG. Krishnaswami Naidu
RespondentCommissioner of Income-tax
Appellant AdvocateK. Srinivasan and ;K.C. Rajappa, Advs.
Respondent AdvocateV. Balasubrahmanian and ;J. Jayaraman, Advs.
Cases ReferredKapurchand Shrimal v. Tax Recovery Officer
Excerpt:
.....act, 1922 - whether levy of penalty under section 28 (1) (c) on assessee as succeeding karta of hindu undivided family (huf) valid in law - assessee contended that in case of death of karta of family and succeeded by another karta assessable entity become different - under income-tax act huf is distinct taxable and juristic entity apart from individual members who constitute it - any change in kartaship would not affect legal continuity of that juristic entity - held, proceedings under section 28 (1) (c) are taken only against huf which is assessable entity and deemed to have committed concealment of income and not against karta personally. - - the assessee appealed to the appellate assistant commissioner against this order under section 34 which was unsuccessful. 28(1). if the.....ramaswami, j. 1. the assessee is a hindu undivided family. itskarta was one v. govindaswami naidu. its income consisted of incomefrom a tannery business and share incomes from a partnership firmby name v. baluswami naidu & co. and another firm by name nayuducoffee supply company. the income-tax returns for the assessmentyears 1948-49 and 1949-50 were filed by govindaswami naidu asthe karta. the enquiries made by the income-tax officer during thecourse of the assessment proceedings for the assessment year 1949-50revealed that a sum of rs. 53,142 and another sum of rs. 1,060 had beendeposited on june 25, 1947, and august 30, 1947, respectively, in thepodukkottai co-operative central bank ltd., in the name of dewan pesh-kar by and on behalf of govindaswami naidu. these two deposits.....
Judgment:

Ramaswami, J.

1. The assessee is a Hindu undivided family. Itskarta was one V. Govindaswami Naidu. Its income consisted of incomefrom a tannery business and share incomes from a partnership firmby name V. Baluswami Naidu & Co. and another firm by name NayuduCoffee Supply Company. The income-tax returns for the assessmentyears 1948-49 and 1949-50 were filed by Govindaswami Naidu asthe karta. The enquiries made by the Income-tax Officer during thecourse of the assessment proceedings for the assessment year 1949-50revealed that a sum of Rs. 53,142 and another sum of Rs. 1,060 had beendeposited on June 25, 1947, and August 30, 1947, respectively, in thePodukkottai Co-operative Central Bank Ltd., in the name of Dewan Pesh-kar by and on behalf of Govindaswami Naidu. These two deposits totallingRs. 54,202 were found to have been utilised for payments of kists forcertain abkari contracts for which the licence was in the name of Govindaswami Naidu. Govindaswami Naidu submitted an explanation in which hepleaded that he was a benamidar for one Bakthavathsalu who wanted tobid at the auction for the abkari contract at Pudukkottai and that as thatperson was not in a position to file a solvency certificate, he sought the helpof Govindaswami Naidu to bid in the auction. Bakthavathsalu wasexamined by the Income-tax Officer. The Income-tax Officer also foundthat a sum of Rs. 946-12-3 being the interest due on the deposit, had beenwithdrawn by the said Govindaswami Naidu. It was common ground thatthe receipt of this interest had also not been accounted in the assessee'sbooks of account.

2. Not accepting the explanation offered by the said Govindaswami Naidu, the Income-tax Officer added a sum of Rs. 54,000 as income from undisclosed source to the income returned for the assessment year-1949-50. On appeal by the assessee, the Appellate Assistant Commissioner held that though there was ample evidence for the finding of the Income-tax Officer that the amount belonged to the assessee, since the deposits were made prior to the year of account on June 25, 1947, and August 30, 1947, theycould not be assessed in the assessment year 1949-50. In the result, he deleted the sum of Rs. 54,000 with a direction that suitable action may be taken for assessing the amount in the earlier year.

3. In the meanwhile, on December 13, 1953, Govindaswami Naidu, the karta, passed away and his only son, Krishnaswami Naidu, became the karta of the Hindu undivided family. Therefore, the notice under Section 34 of the Indian Income-tax Act, 1922, was served on Krishnaswami Naidu in respect of the assessment year 1948-49. In response to the notice, a return was filed under protest with a submission that there had been no default on the part of the assessee to place all the materials before the assessing authority. Simultaneously, penalty proceedings under Section 28(1)(c) of the Act were also initiated against the assessee by a notice dated March 4, 1957. iN the proceedings under Section 34(1)(a) it was held that the deposits made in the Pudukkottai Co-operative Central Bank Ltd. really belonged to the assessee family. The assessee appealed to the Appellate Assistant Commissioner against this order under Section 34 which was unsuccessful. The Tribunal also refused to state a case to the High Court and the assessee's petition to the High Court to direct the Tribunal to state a case was also dismissed.

4. In the penalty proceedings, Krishnaswami Naidu; as the karta of the assessee submitted that he had neither concealed the particulars of income nor deliberately furnished any inaccurate particulars thereof. He contended further that as the previous karta of the family, Govindaswami Naidu, passed away on December 13, 1953, the present karta (Krishnaswami Naidu) who was not conscious of any concealment by him could not be proceeded against under Section 28. It has now been found that the present karta was a young man at the time when the return for the assessment year 1948-49 was submitted by .the then karta, that the present karta was not conversant with the business affairs and that, therefore, he cannot be said to be guilty of conscious concealment of income or deliberate furnishing of inaccurate particulars thereof. But, in the view that any change in the kartaship by death or otherwise cannot affect the legal continuity of the Hindu undivided family as a iuristic entity, it was held that in respect of concealment of income or deliberate furnishing of inaccurate .particulars in the return submitted by the previous karta, proceedings under Section 28(1)(d) could be taken against the Hindu undivided family even after the death of the previous karta who filed the inaccurate return. Ultimately, the levy 'of penalty'of Rs. 16,000 made .by the Income-tax Officer was confirmed by the Appellate Assistant Commissioner and the Tribunal. At the instance of the assessee, the following question has been referred under Section 66(1) of the Act:

' Whether, on the facts and in the circumstances of the case, the levy of penalty under Section 28(1)(c) on the assessee as the succeeding karta of the Hindu undivided family was valid in law '

5. The relevant portion of Section 28 of the Indian Income-tax Act, 1922, reads as follows:

'28(1). If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under the Act, is satisfied that any person-- ....

(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he or it may direct that such person shall pay by way of penalty .... and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.'

6. ' Person ' is denned in Section 2(9) as.' including a Hindu undivided family and a local authority '. Under Section 3, income-tax shall be charged in respect of the total income of the previous year of every Hindu undivided family. It is evident from a reading of Section 28, and Sections 2(9) and 3, that Section 28 deals with only assessable persons and the expressions ' any person' and 'such person' occurring in that section refer to the same assessable person or entity. A Hindu undivided family could, therefore, be exposed to an order for penalty in the circumstances and conditions mentioned in Section 28(1).

7. In order to attract liability for penalty under Section 28(1)(c), three essential conditions have to be satisfied:--(1) the concealment of the income or the deliberate furnishing of inaccurate particulars of such income was in the return submitted or with reference to the return submitted; in other words, the concealment of the income from the assessing authorities; (2) such concealment of income or deliberate furnishing of inaccurate particulars must have been by the assessee; and (3) the concealment of income or furnishing of inaccurate particulars must be a conscious or deliberate act of the assessee.

8. Obviously, the first condition is satisfied in this case because the Income-tax Officer has found that the deposits of Rs. 54,202 belonged to the assessee and this was not disclosed in the return submitted by the assessee for the assessment year 1948-49.

9. The learned counsel for the assessee contended that in the case of death of a karta of a family and succeeded by another karta there is a change in the Hindu undivided family and, therefore; the assessable entity becomes different. Since the return submitted by the previous karta was on behalf of the then Hindu undivided family, which was a different entity,proceedings could not be initiated against the Hindu undivided family as now existing under Section 28 in respect of the return submitted by the previous karta. He further contended that in any case in this case the original Hindu undivided family consisted of only two coparceners, the father and son, and on the death of the father the Hindu undivided family came to an end and the son became the individual assessee. We are clearly of opinion that this contention is incorrect and not acceptable. Under the scheme of the Income-tax Act, a Hindu undivided family is a distinct taxable entity apart from the individual members who constitute that family. For the purposes of assessment under the Income-tax Act, it is a juristic entity. Any change in the kartaship would not affect the legal continuity of that juristic entity. If any authority is needed for this proposition, we may refer to the decision in Radha Rukmani Ammal v. Commissioner of Income-tax, [1957] 31 I.T.R. 704. It is also not correct to state that the property in the hands of a single coparcener was not the property of a Hindu undivided family and that a Hindu undivided family comes to an end as an entity when the coparceners are reduced to a single individual. This point was specifically considered by the Supreme Court in Narendranath v. Commissioner of Wealth-tax, : [1969]74ITR190(SC) . The Supreme Court quoted with approval the following passage of the Judicial Committee of the Privy Council in Attorney-General of Ceylon v. Arunachalam Chettiar , [1958] 34 I.T.R. 42 : 3 E.D.C. 825 (P.C.):

' To my mind it would make a mockery of the undivided family system if this temporary reduction of the coparcenery unit to a single individual were to convert what was previously joint property belonging to an undivided family into the separate property of the 'surviving coparcener.'

10. It was also held by the Supreme Court in Gowli Buddana's case, : [1966]60ITR293(SC) . that the income in such circumstances shall be assessed at the hands of the surviving coparcener not as his individual income but as the income of a Hindu undivided family. It is, therefore, clear that the second condition for the application of Section 28(1)(c) is also satisfied in this case.

11. The learned counsel for the assessee made the following submission with regard to the third condition. The gravamen of the charge under Section 28(1)(c) is a conscious and deliberate concealment of the income or the furnishing of inaccurate particulars. This postulates a guilty mind or mens rea, A Hindu undivided family is a juristic entity and is incapable of such contumacious conduct. The consciousness of the karta in the matter of concealment of the income or the deliberate act of furnishing inaccurate particulars by him cannot be attributed to the Hindu undivided family. In any case, if the karta dies, the action that could be takenagainst him for furnishing a false return with concealed income also dies with him and the assessee, Hindu undivided family, is not liable to be proceeded against for the conduct of the previous karta under Section 28(1)(c). We are unable to accept this contention of the learned counsel.

12. In law, a Hindu undivided family can acquire, own, hold and-dispose of property. It can earn income. How an abstraction without any mind is able to do all these acts It does all these acts through the personality of a manager or karta. The Income-tax Act treats a Hindu undivided family as an assessable juristic entity apart from the members constituting it. Proceedings for the assessment of its income and recovery of tax could also be taken against the Hindu undivided family, but for purposes of filing of returns and serving of notices, etc., the karta acts on behalf of the Hindu undivided family. He is not an agent or a trustee, but acts in a fiduciary capacity. Under the Hindu law, he is entitled to manage the joint family properties and represents the family in all transactions. The propriety of his past actions cannot be called in question by the other coparceners on the ground that they are imprudent actions. In such circumstances they could only ask for a partition. Having regard to these 1 settled legal principles, we do not find any insuperable difficulty in attributing the consciousness of the karta to the Hindu undivided family which he represents. In fact, if the consciousness of the karta cannot be attributed to a Hindu undivided family, neither a lawful act nor an unlawful act could be imputed to it. Even for an ordinary breach of contract the Hindu undivided family cannot be proceeded with. In this connection, it is useful to refer to the decision of the House of Lords in Lennards Carrying Co. v. Asiatic Petroleum Co., [1915] A.C. 705 in which Viscount Haldane L.C., with reference to the liability of a company for default of its managing director, said:

' My Lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of its own ; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation .... If Mr. Lennard was the directing mind of the company, then his action must, unless a corporation is not to be liable at all, have been an action which was the action of the company itself within the meaning of Section 502 .... It must be upon the true construction of that section in such a case as the present one that the fault or privity is the fault or privity of somebody who is not merely a servant or agent for whom the company is liable upon the footing respondeat Superior, but somebody for whom the company is liable because his action is the very action of thecompany itself.'

13. The same principle will have to be applied in the case of a Hindu undivided family also. We are, therefore, of opinion that a Hindu undivided family as an assessable entity remaining the same, proceedings could be initiated under Section 28(1)(c) in respect of a return submitted by the previous karta even after his death. This view is also supported by a decision of this court in Nataraja Gounder v. Commissioner of Income-tax, : [1963]50ITR487(Mad) . The facts in that case were these One Kumaraswami Gounder was the karta of a Hindu undivided family till his death on January 2, 1950. In the return filed by him for the assessment year 1948-49 it was found that an income of Rs. 72,647 had been deliberately concealed. On, the date ofdiscovery of this concealment, Kumaraswami Gounder had died and his son, Nataraja Gounder, had become the karta of the assesses, the Hindu undivided family. On the question whether the penalty can be imposed on the succeeding karta it was held that:

' In the present case, however, the predecessor-karta had in fact filed a return, consciously and deliberately, concealing his income and had laid himself open to the penal provisions of Section 28(1)(c). The succeeding karta only represented the unit, viz., the Hindu undivided family in respect of whose income the preceding karta had filed the offending return. It follows, therefore, that considering the Hindu undivided family as the person contemplated in Section 28(1)(c), there is no doubt that all the requirements of Section 28(1)(c) are satisfied. '

14. Since in this judgment the earlier decisions in Hariram Salt v. Commissioner of Income-tax, : [1955]28ITR231(Mad) and Radha. Rukmani Ammal v. Commissioner of Income-tax , relied on by the learned counsel for the assessee, were considered and held not to deal with the point now in question, it is not-necessary for us again to note those facts in this case.

15. The learned counsel for the assessee then placed strong reliance on the decision of the Supreme Court in Kapurchand Shrimal v. Tax Recovery Officer, : [1969]72ITR623(SC) , that the representative character of the karta cannot be stretched to his contumacious conduct and that conduct attributed to the Hindu undivided family. This decision was concerned with the question of default and liability for arrest and detention of the defaulter. It was held that in the case of a Hindu undivided family the manager is competent to represent the Hindu undivided family by virtue of his status but on that account he cannot be deemed to be the assessee when the assessment is made against the Hindu undivided family and certificate for recovery is issued against the family. It was further held that, in the context in which the expression ' person ' occurs in Sections 276, 276A, 277 and 278, there can be no doubt that it seeks to penalise onlythose individuals who fail to carry out the duty cast by the specific provisions of the statute, or are otherwise responsible for the acts done and, therefore, for the default of the Hindu undivided family in payment of tax the karta cannot be arrested and detained in prison. The ratio of this decision, in our view, is that arrest and detention being corporeal punishments, unless the statute in clear words makes a person liable for arrest and detention for the acts of another, no vicarious liability would arise. Far from helping the assessee in the present case, this decision of the Supreme Court is against him. It was held therein that a Hindu undivided family is a taxable entity distinct from the individual members constituting it, that proceedings for assessment and recovery of tax could be. taken against the Hindu undivided family and that if the properties of the family, movable and immovable, are to be attached, proceedings may be resorted to against the Hindu undivided family and the manager represents the family in the proceedings before the Tax Recovery Officer, It is only on the ground that the statute only makes the 'assessee ' a defaulter for non-payment of tax it was held that the liability to arrest and detention on failure to pay tax due is incurred only by the assessee and not by the manager or karta. It may be mentioned that in the present case, proceedings under Section 28(1)(c) are taken only against the Hindu undivided family which is an assessable entity and which shall be deemed to have committed concealment of the income and not against the karta personally.

16. The decision in Commissioner of Income-tax v. Anwar Ali, : [1970]76ITR696(SC) referred to at the Bar, related to the onus of proof. It was held that the proceedings under Section 28 being penal in character, the burden is on the department to establish that the receipt of the amount in dispute constitutes income of the assessee. It was held to be penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to the practices which the legislature considered to be against public interest. It may be that the proceeding under Section 28 is penal in nature but it cannot be said to be criminal proceeding. In the present case, there is no dispute about the concealment of income nor about the onus or quantum of evidence necessary for that finding. We are, therefore, of opinion that the third condition referred to above is also satisfied in this case.

17. Before parting with the case, we may also refer to one other aspect. In the appeal before the Appellate Assistant Commissioner against the order under Section 28(1)(c) of the Act, the assessee raised a new contention that the abkari business conducted in Pudukkottai was the business of one Baluswami Naidu, a divided brother of Govindaswami Naidu, the thenkarta. This contention was rejected as an after-thought and also on the ground that it had not been proved. This conduct in putting forward a false new case at the appellate stage is taken as a ground by the Tribunal in proof of the assessee's guilt in the matter. The learned counsel for the department did not rely on this ground and he could not have relied on this also because Section 28 has not been invoked against the assessee for the inaccurate information furnished before the Appellate Assistant Commissioner in the appeal against the order under Section 28(1)(c).

18. For the foregoing reasons, we answer the reference in the affirmative and against the assessee with costs. Counsel's fee Rs. 250.


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