JUDGMENT
1 In this case the following question of law has been formulated by the Income-tax Appellate Tribunal :
“Whether on the facts and in the circumstances, assessments on the Hindu undivided family for the years 1943/44 and 1944/45 are sustainable under Section 25A (2), Income-tax Act?”
2. The material facts according to the statement of the case are as follows : There was a partition suit No. 2 of 1942 instituted by Manoharlal Bakrewalla, in the Court of the Subordinate Judge of Singhbhum, Chaibassa. A compromise was effected on 31-3-1943, as a result of winch, Ma-noharial Bakrewalla, his wife Ganga Devi & his five sons, three of whom were minors, agreed to partition the Hindu undivided family and transfer assets, liabilities etc. to a public limited company called ‘Gulabrai Manoharlal Co. Ltd.’ which had been incorporated on 29-3-1943. A memorandum was subsequently executed on 6-5-1943 between the members of the assessee family as vendors and the limited company as vendee. In consideration of Rs. 5,00,000 worth of shares distributed in 5000 shares to Manoharlal and his family members out of total capital of Rs. 11,00,000 the company took over the assets and liabilities on 1-6-1943. The final memorandum of agreement is dated 21-5-1943. On a claim being made under Section 25A the Income-tax Officer recorded an order that the partition had taken place among the members of the undivided family of the assessee. In response to the notice under Section 23 the assessee did not file return of its income nor produced books of account. On 23-6-1947, the Income-tax Officer completed the assessment under Section 23 (4) for the two periods of accounting, viz, the first period being from 20-10-1941 to 8-11-1942 and the second period being from 9-11-1942 to 31-3-1943. Appeals were preferred against the order of assessment to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal. The appeals were dismissed and the assessments made were confirmed. On the application of the assessee the Appellate Tribunal has referred the question of law which has been stated above.
3. On behalf of the assessee Mr. V. D. Narain concentrated his argument on the point that the proceedings of the Income-tax Officer were illegal and without jurisdiction since they related to a Hindu undivided family which had ceased to exist with effect from 31-3-1943. The contention of the learned counsel is that notice of assessment under Section 22 should have gone not to the karta of the undivided family but to the separate members of the family, viz., Manoharlal Bakrewalla, his wife Ganga Devi and his five sons. It was argued that assessment should have been made on separate members and not on the undivided family as such. Learned counsel conceded that in the assessment Order the Income-tax Officer had said that the tax will be realised from six separate members according to their shares. Nevertheless it was urged on behalf of the assessee that the proceedings before the Income-tax Officer were without jurisdiction since Income-tax Officer purported to assess the un-divided Hindu family of Gulabrai Manoharlal which had ceased to exist. The whole argument is based on Section 25A, Income-tax Act. Section 25A (1) states :
“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 portion 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”.
Section 25A(2) states :
“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 or 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 Section 14, 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”.
4. The contention of the learned counsel on behalf of the assessee is that under Section 25A the notice of assessment should have gone not to the karta of the undivided Hindu family but to the separated members. It was submitted that the Income-tax Officer had no jurisdiction to start assessment proceedings against undivided Hindu family of Gulabrai Manoharlal which had ceased to exist. In our opinion the argument of the learned counsel is not correct. On a true construction of Section 25A it is clear enough that the Income-tax Officer in the first place has to make assessment of the total income of the joint family as if no partition had taken place. It is not necessary that the proceedings for assessment under Section 25A should be commenced by a notice to every member of the family. By a process of fiction the Hindu undivided family is deemed to be an existing entity for the purpose of assessment under Section 25A even though there had been partition of the members and the Income-tax authorities had passed order under Section 25A(1) of the Act. In such a case it is not improper on the part of the Income-tax authorities to issue notice to the karta of the former Hindu undivided family though it had ceased to be undivided and joint. This interpretation is supported by several considerations. In the first place it is important to take note of the fact that Section 25A(1) contemplates a case where the Income-tax authorities have already started proceedings for assessment under Section 23 and thereafter it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition had taken place. This sub-section necessarily implies that proceedings for assessment are already commenced by a notice against the karta of an undivided Hindu family and a claim is made in the course of such proceedings that there had been partition, and the taxing authorities then make an inquiry and if satisfied that there has been a partition, record an order to that effect. In the second place, Section 25A(2) states that 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. In the third place, there is a proviso to Section 25A(2) which states 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. In view of all these considerations it is obvious that the proceedings under Section 25A were properly initiated in the
present case by the issue of a notice against the karta of the joint family. The position is as if the taxing authorities are making assessment of the income of a Hindu undivided family as such.
It was contended by the learned counsel on behalf of the assessee that the notice of the proceedings should have been given to each and every member of the Hindu joint family which had been divided. Learned Counsel referred to the latter part of Section 25A(2) which states that “the Income-tax Officer shall make assessment accordingly on the various members and groups of members in accordance with the provisions of Section 23”. But the word ‘assessment’ in this clause is not used in the sense of a proceeding for assessment for imposing liability upon the assessee. The word ‘assessment’ used in this clause means ‘computation of income’ or the determination of the amount of tax payable. There is, therefore, no substance in the contention of the assessee that the proceedings should have been initiated by a separate notice against each of the individual members of the erstwhile joint family. It is necessary to point out that in the present case the Income-tax Officer has properly observed that under Section 25A(2) the tax would be realised from six separated members of the family according to their shares. It also appears from the paperbook that demand notice under Section 29 had been sent to the six family members. On this point there is a slight mistake in the Order of the Appellate Tribunal dated 4-7-1950, for the Appellate Tribunal states that no separate demands according to Counsel have been made on the six constituent members of the old family as is required by Section 29, Income-tax Act. In the background of these facts we think that the assessment has been properly made on the Hindu undivided family for the years 1945-44 and 1944-45 under Section 25A(2), Income-tax Act. The view we have taken of the interpretation of Section 25A is supported by the decision of the Supreme Court in — ‘Lakshminarain Bhadani v. Commr. of Income-tax, B & O’, AIR 1953 SC 429 (A), in which a joint Hindu family, of which the appellant was karta, was assessed to Income-tax for the year 1939-40. In 1944 the Income-tax Officer considered that certain income of the family taxable in 1939-40 had escaped assessment. In the meanwhile, the family had become divided and an order had been passed under Section 25A(1) of the Act. The Income-tax Officer issued a notice in the name of the joint Hindu family and served it on the appellant under Section 34 read with Section 22 to make a return in respect of the escaped income and the appellant sent a return in response to that notice. Thereafter, the Income-tax Officer made an assessment on the escaped income and issued a notice of demand on the appellant as the karta and on the two other members of the family. In this state of facts it was held by the High Court that the procedure of the Income-tax Officer in issuing the notice under Section 34 was defective inasmuch as under that section the notice was to be issued on the person liable to pay the tax and under Section 25A(2) it was the ex-members of the family that were liable; and a notice should have been issued upon each ex-member in order to make each liable. On appeal before the Supreme Court it was contended that the proceedings were illegal as no valid notice under Section 34 could be issued against the karta of the joint family which had ceased to exist. The argument was rejected by the Supreme Court and it was held that the proceedings were validly initiated by the issue of notice to the erstwhile karta of the joint family and that it was not necessary to issue notice under Section 34 read with Section 22 to every member of the family. At p. 430 Kania C. J. states :
“Mr. Umrigar, on behalf of the appellant, argued only one point for our consideration. He contended that as the High Court had held that the proceedings were irregularly initiated and completed they were invalid and no order for assessment could be made. For this contention he relies on the wording of Section 25A(1). In our opinion, this contention is unsound and the opinion of the High Court that the proceedings were initiated irregularly is also unsound. It does not appear necessary, when proceedings are initiated under Section 34 read with Section 22, Income-tax Act, to issue notice to every member of the family. The position is as if the Income-tax Officer was proceeding to assess the income of the Hindu undivided family as in 1939-40. In our opinion therefore, that contention must be rejected.”
5. Our view is also supported by the decision of the Madras High Court reported in — ‘Commr. of Income-tax, Madras v. Swaminathan’, AIR 1948 Mad 164 (B). It was held by the Chief Justice and Patanjali Sastri J. (as he then was) in that case that notice under Section 34 of the re-assessment of the Hindu undivided family was valid notwithstanding that the family had ceased to exist as such under the partition which took place in January 1940, previous to the issue of notice. It was further held that the notice served on the assessee under Section 34 was proper and valid though there was no indication in it as to whether it was his personal assessment or the assessment made on him as the manager of the family for the year 1939-40 that was proposed to be re-opened. It was argued in that case that the assessee was not aware from the notice served upon him whether he was proposed to be assessed as karta of the family or in his individual capacity and the proceedings against him were hence without jurisdiction. The argument was rejected by Patanjali Sastri J. who said that even assuming that the notice did not; give the correct particulars as to the person or income which the authorities sought to assess the irregularity must, in the circumstances of the case, be deemed to have been waived by the assessee.
6. In our opinion the present case falls within
the ambit of the principle enunciated by the
Supreme Court in — AIR 1953 SC 429 (A)’ and
it must be held that the proceedings before the
taxing authorities purporting to tax the Hindu
undivided family of Gulabrai Manoharlal and demanding the tax assessed from the six divided
constituent members under Section 29, Income-tax Act
are legally valid and that the question framed
by the Income-tax Appellate Tribunal must be answered in favour of the Income-tax Department. The
assessee must pay the cost of this reference. Hearing fee Rs. 250/-
