1967 (7) TMI 45 - HC - Income Tax

Notices issued under sections 13(1) and 15 of Excess Profits Tax Act 1940 - notices were issued against an entity which was no longer in existence - notices were rightly quashed

Summary

Issues:
Proceedings under the Excess Profits Tax Act initiated against a disrupted Hindu undivided family, validity of notices issued under sections 13(1) and 15 of the Act, applicability of sections 44 and 63 of the Income-tax Act to proceedings under the Excess Profits Tax Act, interpretation of the expression "association of persons" in section 44 of the Income-tax Act, legality of taxation proceedings against a dissolved entity, effect of voluntary disclosure on taxation, justification of quashing notices under sections 13(1) and 15 of the Excess Profits Tax Act.

Detailed Analysis:

The judgment delivered by the High Court of Allahabad pertained to two special appeals arising from proceedings under the Excess Profits Tax Act, 1940 involving a disrupted Hindu undivided family known as "Ramnath Ram Prasad." The main contention before the court was whether proceedings under the Excess Profits Tax Act could be initiated against a Hindu undivided family that had been disrupted years before the notices were issued in 1957 and 1958. The court referred to previous decisions, including Commissioner of Excess Profits Tax v. Jivaraj Topur and Sons, which held that defunct Hindu undivided families could not be assessed under the Act.

The appellant argued for the reconsideration of these decisions, citing a Supreme Court ruling in E. M. Muthappa Chettiar v. Income-tax Officer, which dealt with the assessment of dissolved firms. The court analyzed the applicability of sections 44 and 63 of the Income-tax Act to proceedings under the Excess Profits Tax Act, particularly focusing on whether the term "association of persons" encompassed a Hindu undivided family. The court also considered the effect of voluntary disclosure on taxation proceedings and the principle of initiating legal proceedings against entities no longer in existence.

The court highlighted that the notices issued under the Excess Profits Tax Act were addressed to the Hindu undivided family, despite its disruption in 1951. It emphasized that legal proceedings cannot be initiated against entities that no longer exist. Additionally, the court addressed the argument that voluntary disclosure precluded objections to subsequent taxation, noting the lack of clarity regarding the purpose of the disclosure in relation to taxation under the Excess Profits Tax Act.

Ultimately, the court upheld the decision to quash the notices under sections 13(1) and 15 of the Excess Profits Tax Act, stating that the orders did not prevent the appellant from pursuing other legal avenues against the respondents. The special appeals were dismissed with costs, affirming the quashing of the notices while leaving room for alternative legal actions permissible under the law.