PETITIONER: ADDITIONAL INCOME-TAX OFFICER, CUDDAPAH Vs. RESPONDENT: A. THIMMAYYAAND OTHERS DATE OF JUDGMENT: 09/11/1964 BENCH: SHAH, J.C. BENCH: SHAH, J.C. SUBBARAO, K. SIKRI, S.M. CITATION: 1965 AIR 1238 1965 SCR (2) 91 CITATOR INFO : RF 1972 SC 294 (12) R 1976 SC1678 (6) RF 1977 SC 552 (7) R 1981 SC1965 (14,16) R 1982 SC 760 (13) ACT: Income-tax Act (XI of 1922), s. 25-A (1) and (2)-Scope of. HEADNOTE: While proceedings for assessment of the income-tax of a Hindu undivided family, of which the respondents were members, were pending, there was a partition in the family and a consequent claim for recognising the partition under s. 25-A(1) of the Income-tax Act (XI of 1922) was made before the Income-tax Officer. The officer however proceeded to assess the tax as if there was no partition and after the order of assessment was made, passed an order recognising the partition. The amount of tax determined by the officer was questioned on appeal and before the Tribunal but without success. As the tax due was in arrear, the officer sought to attach the remuneration earned by the respondents as employees of a firm, by resorting to s. 46(5) of the Act. The respondents challenged the order of the Income-tax Officer under s. 46(5), by a writ petition which was allowed by the High Court on the ground that the Income- tax Officer could not proceed to collect the tax without apportioning the tax liability under 25-A(2). In appeal to the Supreme Court, HELD : Though the High Court was in error in holding that an order of assessment which had become final was liable to be reopened under s.25-A(2) by the Income-tax Officer when the order under s. 25-A(1) was passed by him subsequent to the order of assessment, the appeal should be dismissed because, so long as there was an assessment of the Hindu undivided family, the liability for payment of the tax was on the property of the family and there was no personal liability on the members. [97 E-F, H] The scheme of the section is that a Hindu undivided family assessed in respect of its income, would continue to be assessed in that status notwithstanding a partition of the property among its members. If a claim is raised at the time of making an assessment that a partition had been effected, the Income-tax Officer must make an inquiry after notice to all the members of the family and make an order that the family property had been partitioned in definite portions if he is so satisfied. He is however, by law required to make the assessment on the income of the un- divided family, as if no partition had taken place and then to apportion to each member or group of members the tax- liability according to the portion of the family property allotted. In such a case the members of the family stand jointly and severally liable for the entire amount of tax, under the proviso to sub. (2) of section. It no claim for recording partition is made, or if a claim is made and it is disallowed, or the claim is not considered by the officer, the assessment will continue as if there has been no partition, and so long as the assessment is made on the income of the undivided family, the liability to satisfy the tax must be restricted to the estate of the family. [96 B-F] JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1019-1020
of 1963.
Appeals from the judgment and orders dated August 3, 1961 of
the Andhra Pradesh High Court in Writ Appeals Nos. 49 and 50
of 1960.
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S. V. Gupte, Solicitor-General, N. D. Karkhanis and R. N.
Sachthey, for the appellant (in both the appeals).
K.N. Rajagopala Sastri, A. Ramachandran for R. Gopala-
kkrishnan, for the respondent (in both the appeals).
The Judgment of the Court was delivered by
Shah, J. Krishnappa and his two sons-Thimmayya and
Venkatanarsu-constituted a Hindu undivided family. They
carried on business in mining in the name and style of
Krishnappa and Sons. The family was disrupted in 1946, and
all its properties were divided among the members of the
family. The business of Krishnappa and Sons was taken over
by a firm of which the partners were Krishnappa and his two
sons. A private limited Company styled “Krishnappa Asbestos
and Barytes (Private) Ltd.” took over the business of the
firm on May 21, 1947 for Rs. 2,04,000. Thimmayya obtained
employment under the Company as Mines Superintendent at a
monthly salary of Rs. 400 and Verkatanarsu as General
Manager at a monthly salary of Rs. 500.
Proceedings for assessment of tax due by the Hindu undivided
family for the years 1941-42, 1942-43, 1944-45, 1945-46 and
1946-47 were pending at the time when the Hindu undivided
family was disrupted. On May 20, 1946, Venkatanarsu claimed
before the Additional Income-tax Officer, Cuddapah that the
property of the Hindu undivided family had been partitioned
among the members indefinite portions. For reasons which do
not appear from the record; this claim was not disposed of
till June 30, 1952. In the meanwhile assessments for the
five years in question were made by the Income-tax Officer
on diverse dates between September 30, 1948 and November 30,
1950, resulting in a tax liability of Rs. 65,750 in the
aggregate for the five years. Appeals prepared against the
orders of assessment to the Appellate Assistant Commissioner
and the Income-tax Appellate Tribunal proved unsuccessful.
It is common ground that it was not contended in the appeals
that in making the orders of assessment, without disposing
of the claim that the family was disrupted in 1946, the
Income-tax Officer had acted illegally.
On June 30, 1952 the Income-tax Officer, Special Circle,
Madras, made an order under s. 25-A recording that the
property of the Hindu undivided family of Krishnappa and his
sons was partitioned on November 2, 1946. As the tax due
was not paid the Income-tax Officer made an order under S.
46(5) of the Indian Income-tax Act, 1922 on June 25, 1958
calling upon the Managing Director to withhold the amount of
tax due from the salaries
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payable to the defaulters Thimmayya and Venkatanarsu and to
show the same to the credit of the Government of India.
Thimmayya and Venkatanarsu then lodged petitions under Art.
226 of the Constitution in the High Court of Andhra Pradesh
at Hyderabad, praying that writs of certiorari or other
appropriate writs be issued quashing the order dated June
25, 1958 of the Income-tax Officer under s. 46(5). They
founded their petitions on two grounds-(i) that after the
Income-tax Officer recorded an order on June 30, 1952 under
s. 25-A(1) that the family had disrupted “with effect from
November 2, 1946”, steps taken for recovery of the amount of
tax assessed without an appropriate order under s. 25-A(2)
were invalid, and (ii) arrears of tax due by the erstwhile
Hindu undivided family could not be recovered from
remuneration earned by them as employees of the Company.
The petitions were decided by Seshachelapati J., in favour
of the two petitioners, and the decision was confirmed in
appeal by a Division Bench of the High Court of Andhra
Pradesh. The High Court held that the order on the claim
made under s. 25-A(1) on June 30, 1952 was given “a clear
retrospective operation”, and the Income-tax Officer was
bound “to give effect to that order recognising the
partition and to follow up the consequences which flowed
from the order”. In the view of the High Court the
petitioners were entitled to insist upon an order for
apportionment under s. 25-A(2) and without such an order,
proceedings for collection of tax could not be commenced
against them under the proviso to sub-s. (2 ) of s. 25-A.
Against the order of the High Court, with certificate of
fitness, these two appeals have been preferred by the
Income-tax Officer, Cuddapah.
Under the Indian Income-tax Act, 1922, as it originally
stood, a Hindu undivided family was regarded by s. 3 as a
unit of assessment, but no machinery was set up for levying
tax or for enforcing liability to tax on the members of the
family, if before the order of assessment the family was
divided. Absence of this machinery was more acutely felt
because of s. 14(1), which provided that tax shall not be
payable by an assessee in respect of any sum which he
received as a member of a Hindu undivided family. Income
received by a Hindu undivided family could not therefore be
assessed and collected from the members of the family. if at
the time of making the assessment the family was divided.
To rectify what was obviously a lacuna, the Legislature
incorporated s. 25-A for assessment and enforcement of
liability to tax income received by a Hindu undivided
family, which was no
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longer in existence at the date of assessment. But the new
section went very much beyond rectifying the defect in the
statute which necessitated the amendment. Section 25-A
incorporated by the Indian Income-tax Amendment Act 3 of
1928 at the material time read as follows
“(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 there into 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.
(2)Where such an order has been passed, or
where any person has succeeded to a business,
profession or vocation formerly carried on by
a Hindu undivided family whose joint family
property has been partitioned on or after the
last day on which it carried on such business,
profession or vocation, the Income-tax Officer
shall make an assessment of the total income
received by or on behalf of the joint family
as such, as if no partition had taken place,
and each member or group of members shall, in
addition to any income-tax for which he or it
may be separately liable and notwithstanding
anything contained in sub-section (1) of sec-
tion 15, be liable for a share of the tax on
the income so assessed according to the
portion of the joint family property allotted
to him or it; and the Income-tax Officer shall
make assessments accordingly on the various
members and groups of members in accordance
with the provisions of section 23
Provided that all the members and groups of
members whose joint family property has been
partitioned shall be liable jointly and
severally for the tax assessed on the total
income received by or on behalf of the joint
family as such.
(3)Where such an order has not been passed in
respect of a Hindu family hitherto assessed as
undivided,
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such family shall be deemed, for the purposes
of this Act, to continue to be a Hindu
undivided family.”
The Section makes two substantive provisions-(i) that a
Hindu undivided family which has been assessed to tax shall
be deemed for the purposes of the Act, to continue to be
treated as unadivided and therefore liable to be taxed in
that status unless an order is passed in respect of that
family recording partition of its property as contemplated
by sub-s. (1); and (ii) if at the time of making an
assessment it is claimed by or on behalf of the members of
the family that the property of the joint family has been
partitioned among the members or groups of members in
definite portions, i.e. a complete partition of the entire
estate is made, resulting in such physical division of the
estate as it is capable of being made, the Income-tax
Officer shall hold an inquiry, and if he is satisfied that
the partition had taken place, he shall record an order to
that effect. Where an order has been passed, the Income-tax
Officer must still make an assessment of the total income
received by or on behalf of the undivided family as if no
partition had taken place, and shall thereafter apportion
the income-tax assessed on the total income received by the
family and assess each member or group of members in
accordance with the provisions of s. 23 by adding to the
incometax for which such member or group of members may be
separately liable, tax proportionate to the portion of the
undivided family property allotted to him or to the group.
This apportionment and fresh assessment operate
notwithstanding anything contained in sub-s. (1) of s. 14.
The proviso to sub-s. (2) makes a departure of a vital
character. Whereas in the case of an assessment of the
income of the joint family, the tax liability is charged
upon the assets of the family, when upon a partition an
order under sub-s. (1) has been recorded all members and
groups of members are expressly declared by the proviso to
be jointly and severally liable for the tax assessed on the
total income received by or on behalf of the joint family.
-Liability which so long as an order was not recorded under
s. 25-A(1) was restricted to the assets of the Hindu
undivided family is by virtue of the proviso to sub-s. (2)
transformed when the order is recorded, into personal
liability of the members for the amount of tax due by the
family.
An order under sub-s. (1) can only be made if certain
conditions co-exist-the family in question has been hitherto
assesse das undivided and a claim is made at the time of
making anassessment that partition of the family property
has been madebetween
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the members or groups in definite portions. Sub-section (2)
of s. 25-A becomes effective only if an order under S. 25-
A(1) is made and not otherwise. In terms the’ sub-section
enacts that the Income-tax Officer shall assess the total
income received by or on behalf of the joint family and
apportion it in the manner provided by sub-s. (2) where an
order is passed under sub-s. (1).
The scheme of S. 25-A is therefore clear : a Hindu undivided
family hitherto assessed in respect of its income will
continue to be assessed in that status notwithstanding
partition of the property among its members. If a claim is
raised at the time of making an assessment that a partition
has been effected, the Income-tax Officer must make an
inquiry after notice to all the members of the family and
make an order that the family property has been partitioned
in definite portions, if he is satisfied in that behalf.
The Income-tax Officer is by law required still to make the
assessment of the income of the Hindu undivided family, as
if no partition had taken place, and then to apportion the
total tax liability and to add to the tax on the separate
income of the members or groups of members the tax
proportionate to the portion of the joint family property
allotted to such members or groups of members and to make
under S. 23 assessment on the members accordingly. If no
claim for recording partition is made, or if a claim is made
and it is disallowed or the claim is not considered by the
Income-tax Officer, the assessment of the Hindu undivided
family which has hitherto been assessed as undivided will
continue to be made as if the Hindu undivided family has
received the income and is liable to be assessed.
Failure to make an order on the claim made does not affect
the jurisdiction of the Income-tax Officer to make an
assessment of the Hindu family which had hitherto been
assessed as undivided. The Income-tax Officer may assess the
income of the Hindu family hitherto assessed as undivided
notwithstanding partition, if no claim in that behalf has
been made to him or if he is not satisfied about the truth
of the claim that the joint family property has been
partitioned in definite portions, or if on account of some
error or inadvertence he fails to dispose of the claim. In
all these cases his jurisdiction to assess the income of the
family hitherto assessed as undivided remains unaffected,
for the procedure for making assessment of tax is statutory.
Any error or irregularity in the assessment may be rectified
in the manner pro-
97
vided by the statute alone, and the assessment is not liable
to be challenged collaterally.
In the present case claim was undoubtedly made at the time
of making an assessment, that the property of the family was
partitioned. The claim was not disposed of before making
the assessment, and the Income-tax Officer proceeded to
assess the income of the family as if the property of the
family had not been partitioned. It is true that by order
dated June 30, 1952 the Income-tax Officer held that the
property of the family was partitioned on November 2, 1946.
But the Act contains no machinery authorising an Income-tax
Officer to re-open an assessment of a Hindu undivided
family, relying upon an order made by him under s. 25-A(1)
after the order of assessment is made. In the present case
appeals were filed and it is common ground that no objection
was raised as to the regularity or legality of the procedure
followed by the Income-tax Officer. The assessment
proceedings were taken to the Income-tax Appellate Tribunal
and the orders of assessment were confirmed. Thereafter it
was not open to the Income-tax Officer to re-open the orders
of assessment, relying upon the order recording the
partitions and to seek to subvert orders which had become
final under the seal of the Income-tax Appellate Tribunal.
The High Court was, in our judgment, in error in holding
that an order of assessment which has become final is liable
to be re-opened under s. 25-A(2) by the Income-tax Officer,
when an order under s. 25-A (1) is passed by him subsequent
to the order of assessment.
But the appeals filed by the Income-tax Officer must still
fail. Order recording the partition subsequent to the date
on which the order of assessment was made must for reasons
aforementioned be ignored and tax levied as if no such
order was made. The effect of that step however is that in
the absence of an order under s. 25-A(1) and the
consequential proceedings under sub-s. (2) liability to pay
tax must rest upon the property of the Hindu undivided
family : it cannot be enforced against the members of the
family personally. The Income-tax Officer has sought by
resorting to s. 46(5) to attach the remuneration earned by
Thimmayya and Venkatanarsu as employees of Krishnappa
Asbestos & Barytes (Private) Ltd. this he was incompetent to
do. So long as the assessment is made of income of the Hindu
undivided family, liability to satisfy the tax must be
restricted to the estate of the family : after an order of
partition is recorded
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and assessment is made under sub-s. (2) of S. 25-A but not
till then, the proviso to that sub-section will operate.
The Solicitor-General contended that the second paragraph of
sub-s. (2) which is in the form of a proviso, is in
substance a substantive provision imposing joint and several
liability for tax assessed on the total income received by
or on behalf of the joint family against all members of the
family. The contention is that by the proviso the
Legislature intended that in respect of the income of a
Hindu undivided family, once partition is effected, whether
the partition is recorded or not under sub-s. (1), all
members of the family will be jointly and severally liable
for the tax assessed on the total income received by or on
behalf of the family. But howsoever read the proviso yields
no such meaning.
The scheme of the section is that so long as there is an of
the Hindu undivided family, the liability for payment of the
tax is on the property of the family and not personally on
the members. Where an order that the property of the family
has been partitioned is recorded, the liability of the
members has to be apportioned in the manner set out in sub-
section, but one of the incidents of assessment after
apportionment of tax liability is That the members of the
family stand jointly and severally liable for the entire
amount of tax assessed against the family.
In the present case no orders were recorded by the Income-
tax Officer at the time of making assessments in respect of
the five years, and therefore no personal liability of the
members of the family arose under the proviso to sub-s. (2).
The Income-tax Officer does not seek to reach in the hands
of Thimmayya and Venkatanarsu the property which was once
the property of the Hindu undivided family; he seeks to
reach the personal income of the two respondents. That the
Income-tax Officer could do only if by virtue of the proviso
to sub-section (2) a personal liability has arisen against
them. In the absence of an order under sub-s. (1), however,
such a liability does not arise against the members of the
Hindu undivided family, even if the family is disrupted.
We are, therefore of the view, but not for the reasons
mentioned by the High Court, that because there has been
before the orders of assessment no order recording that the
property of the family has been partitioned among the
members, the two dents are not personally liable to satisfy
tax due by the joint family. The remedy of the Income-tax
authorities in the circumstances of the case, was to proceed
against the property,
99
if any, of the Hindu undivided family. That admittedly they
have not done.
The order of the High Court must, therefore, be confirmed’
and the appeals dismissed with costs. There will be one
hearing fee.
Appeals dismissed.