1981 (8) TMI 2 - SC - Income Tax

Since it is not established that the claim was a belated one the proper order to be passed is to set aside the assessments and to direct the ITO to make fresh assessments in accordance with the procedure prescribed by law - Tribunal therefore erred in merely cancelling the assessment orders and in not issuing further directions - We do not however agree with the orders made by the High Court by which it upheld the assessments and directed the ITO to make appropriate modifications

Summary

Issues Involved:
1. Validity of assessment orders made without holding an inquiry into the claim of partition under Section 25A of the Indian Income-tax Act, 1922.
2. Whether the Tribunal's decision to cancel the assessments without directing fresh assessments was appropriate.
3. The appropriate remedy when an assessment is made in violation of Section 25A.

Detailed Analysis:

Issue 1: Validity of Assessment Orders Made Without Holding an Inquiry into the Claim of Partition under Section 25A
The core issue in these appeals is whether assessment orders made by the Income-tax Officer (ITO) against a Hindu Undivided Family (HUF) without conducting an inquiry into the claim of partition, as mandated by Section 25A of the Indian Income-tax Act, 1922, are valid. The court noted that the assessee had made a proper and valid request for recording the partition as early as October 10, 1960. Despite this, the ITO completed the assessments for the years 1955-56 and 1957-58 to 1961-62 without conducting the required inquiry. The ITO only refused to record the partition on March 30, 1965, and this refusal was overturned by the Appellate Assistant Commissioner (AAC) on November 8, 1967, who confirmed that a partition had occurred on July 10, 1960. The court concluded that the assessments made without holding an inquiry into the claim of partition were illegal and void, as they violated the mandatory provisions of Section 25A(1) of the Act.

Issue 2: Whether the Tribunal's Decision to Cancel the Assessments Without Directing Fresh Assessments Was Appropriate
The Tribunal had canceled the assessments for the years in question, stating that the assessments were illegal due to non-compliance with Section 25A(1). However, the Tribunal did not issue any further directions for fresh assessments, leaving it open for the ITO to proceed if the law permitted. The Supreme Court held that the Tribunal erred in merely canceling the assessments without issuing further directions. It emphasized that an appellate authority has the jurisdiction and duty to correct all errors in the proceedings under appeal and to issue appropriate directions to dispose of the matter afresh unless forbidden by statute.

Issue 3: The Appropriate Remedy When an Assessment Is Made in Violation of Section 25A
The Supreme Court disagreed with the High Court's decision to uphold the assessments and direct the ITO to make appropriate modifications. The court found this approach unwarranted given the circumstances. Instead, it held that the proper remedy was to set aside the assessments and direct the ITO to make fresh assessments in accordance with the law. The court clarified that when a claim of partition is made in time, and the assessment is made on the HUF without holding an inquiry as required by Section 25A(1), the assessment is liable to be set aside in appeal. The court also noted that the statute does not prohibit the appellate authority from issuing such directions.

Conclusion:
The Supreme Court set aside the High Court's order and held that the assessments were liable to be set aside due to non-compliance with Section 25A(1). The Tribunal should direct the ITO to make fresh assessments in accordance with the law. The appeals were disposed of accordingly, with no order as to costs.