TMI Blog1964 (7) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... and others by the assessee. In particular, I.T.A. No. 7330 was by the assessee and I.T.A. No. 11075 was by the department. The status taken in the two appeals under consideration was that of individual. For the purpose of understanding the position, we may state that the same person figures in two different capacities, the individual assessee, Mathuradas Mohta, to whom we shall hereinafter refer to as M-I, and the assessee Hindu undivided family, which we shall hereinafter refer to as M-H. 3. In order to properly appreciate the contentions raised in these appeals we may set out the history of these assessments. At one time Mathuradas Mohta was being assessed as karta of the Hindu undivided family consisting of himself, his wife and three sons. In the course of assessment proceedings for the assessment year 1944-45 (the previous year being S.Y. 1999, i.e., November 9, 1942, to October 29, 1943), a claim under section 25A was made. It was to the effect that since Diwali 1944, or to be more precise on October 16, 1944, a complete partition took place amongst Mathuradas, his wife and their three sons and hence, an order under section 25A was claimed. The said family used to derive i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al facts were established before it and some additional material was also produced. In view of the additional data, the Tribunal on this occasion came to the conclusion that the partition claimed to have been made on October 16, 1944, was a genuine one and that the partition deed executed on December 30, 1944, was intended to be acted upon by the parties to it. It, however, found that the dwelling house of the family at Bikaner remained undivided though all the property was divided amongst the several parties to the partition as required by the provisions of section 25A. It, therefore, gave the following direction: This being our view, we must cancel the assessments made on the family for the years 1948-49 and 1949-50. These assessments have been made on the family. Separate assessments will have to be made on Seth Mathuradas and the other members of the family. We also direct that fresh assessments be made on the Hindu undivided family in respect of its income from the Bikaner house. 5. In view of the fact that the whole of the family property was not divided for the purposes of section 25A, the Tribunal upheld the Income-tax Officer's refusal to make an order under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere being disputed by the parties concerned. It was in those circumstances the Tribunal had before it some assessments made in accordance with the first finding and some made in accordance with the second finding of the Tribunal. Both the findings given by the Tribunal and ultimately confirmed by the Supreme Court by its order made on November 22, 1960, were binding upon the parties concerned in respect of all assessments for which those findings were given and also in regard to all other assessments that had become final and conclusive. In regard to these assessments which were made either on M-H or M-I or appeals filed by the department which had not become final and conclusive, the Tribunal considered that the second finding of the Tribunal would prevail and those pending assessments and appeals would have to be decided on the footing that a genuine partial partition did take place on October 16, 1944, that the erstwhile Hindu undivided family property was divided amongst the several members except the dwelling house at Bikaner as set out in the partition deed of December 30, 1944, and that the several members became owners of the several assets allotted to them as on October 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs and the balance was attributed to movable properties. In due course, a sale deed was executed on January 8, 1947, and it was registered on January 11, 1947. After reciting the facts contained in the agreement of sale made on October 23, 1946, the said sale deed specifically referred to the fact that it related to immovable properties only valued at ₹ 14.8 lakhs. It also stated that the total consideration of ₹ 47.5 lakhs was to be paid by fully paid up shares and that till such time of allotment of shares by the purchaser-company to the vendors, hereinbefore mentioned, the said sum of ₹ 47,80,000 shall be a loan due to the vendors by the purchaser-company and that it would carry interest at 6% per annum. It was also common ground that actual possession of the said mills was given, as agreed in the agreement of sale, on Kartik Sud I, Samvat 2003, i.e., the first day of the previous year relevant to the assessment year 1948-49. 10. On these facts and particularly having regard to the fact that the board of directors of the limited company unanimously resolved on October 23, 1946, to purchase the mills, the Income-tax Officer contended that the effective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business as from April 1, 1947. Thus, it is evident that a distinction has been made there. This is, however, not enough in that case. The possession was kept by the vendors up to the date of completion of sale, viz., December 31, 1947, and in the meantime, the vendors carried on business on behalf of the purchasers. During this period, there was a loss and the company claimed that the loss belonged to it. The department disallowed the loss while the High Court held that the vendors were mere agents on behalf of the purchasers and it was the purchaser who was entitled to the loss. Accordingly, the loss was allowed against the income of the vendors, viz., Perfect Pottery Co. Ltd. It will thus be seen that the facts in the case of the appellant are quite different. From the books produced both of the company and of the vendor, it is clear here that the company took possession as from October 25, 1946. In this connection, I may also mention that the Tribunal, in its order dated February 20, 1952, in respect of the assessment years 1948-49 and 1949-50, has held in paragraph 5 that the mills were sold by the appellant to the private limited company on October 25, 1946. Even the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised the point regarding the effective date of the sale of assets for the purpose of arriving at the capital gains. In this connection, I may state that in the case of the original assessment for the assessment year 1948-49, in respect of the Hindu undivided family which was then not recognised by the department as partitioned, the facts regarding this capital gains were gone into when the amount of capital gains was computed and also the date of sale was ascertained by the Income-tax Officer to be October 25, 1946, which fell for the assessment year 1948-49 for which year the capital gains was taxed. However, for the year under appeal, the Income-tax Officer found that the agreement of sale was dated October 23, 1946, while the sale deed was dated January 8, 1947. Besides, clause 4 of the agreement of sale provided that the vendor should give possession of the mills on October 25, 1946, to the company. As this was not clear to the Income-tax Officer he issued a notice to the company to state the date on which the assets of the mills were sold by the appellant to the company. The company replied that the agreement of sale was entered into on October 23, 1946, the sale deed was exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(2) against the joint Hindu family. I, therefore, do not accept the plea of Shri Mulla that it was a voluntary return. All that has happened is that the Income-tax Officer did not recognise the status as returned by the appellant, but he assessed him in the status of joint Hindu family. In the circumstances, the first plea is not accepted. This action has been taken under section 34 on March 3, 1956, by issuing a notice under section 34 received by the appellant on March 22, 1956, on the basis of the finding of the Appellate Tribunal in its order dated February 20, 1952, in the case of the Hindu undivided family, which claimed a partition as from October 16, 1944. In paragraph 7 of their order, there is a distinct finding of the Tribunal as under: Separate assessments will have to be made on Seth Mathuradas and other members of the family. We also direct that fresh assessments be made on the Hindu undivided family in respect of its income from Bikaner house. In view of this finding and directions, I hold that the Income-tax Officer was justified in taking recourse to section 34 of the Act. Since the High Court has confirmed the decision of the Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was to be assessed in the hands of the assessee for 1949-50 assessment year, he held that there would not be any profit available for the assessment year 1950-51. 14. This finding of the Appellate Assistant Commissioner was challenged before the Tribunal by the department. There was a similar challenge before the Tribunal in regard to the remittance of ₹ 46,910 in respect of Bikaner profits. The Appellate Assistant Commissioner's decision turned upon the view taken by him that profits available for remittance to this assessee, M-I, would be only the profits that he would make as owner of the said business from and after October 16, 1944, and that the profits that fell to his lot when he took over the several business concerns as going concerns as a result of partition made on October 16, 1944, would be considered as capitalised and there could not be any remittance of income in respect of those capitalised profits. 15. Following the decision of the Madras High Court in the case of Commissioner of Income-tax v. Annamalai Chettiar ([1944] 12 I.T.R. 226) and in the absence of any other High Court decision to the contrary, the Tribunal upheld the Income-tax Officer& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The last contention (i.e., No. 16), is in respect of the penal interest of ₹ 24,214 charged against the 18A-demand. It is pleaded by Shri Mulla that the full payment was made against 18A-demand in the case of the Hindu undivided family as it was held that there was no partition. It is, therefore, submitted by him that there was no justification in raising a demand for the same income for the second time against the individual case. This contention has force, and I hold that no two demands can be made against the same income. The Tribunal took the view that the Appellate Assistant Commissioner erred in accepting this contention. In dealing with this, the Tribunal observed as follows: If the law makes a clear distinction between Mathuradas Mohta, the assessee in his individual capacity, and Mathuradas Mohta, the assessee in his representative capacity as karta of the Hindu undivided family, there are two different assessees for the purpose of the Income-tax Act and every one of the two has to comply with the provisions of that Act. The undisputed fact remains that Mathuradas, the individual assessee, neither made any estimate of tax under section 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n I.T.A. No. 11075 of 1958-59 dated December 23, 1960 (marked annexure J ); a copy of the order of the Appellate Assistant Commissioner dated November 24, 1958, passed in I.T.A. No. Spl. C. 35/55-56 for the assessment year 1950-51 under section 23(3) and section 34 of the Income-tax Act (marked annexure K ); a copy of the Income-tax Officer's assessment order dated March 30, 1955, for the assessment year 1950-51 (marked annexure L ); a copy of the Tribunal's consolidated order in I.T. As. Nos. 4413, 4414 and 4415 of 1950-51 in the case of Seth Mathuradas (Hindu undivided family), dated February 20, 1952 (marked annexure M ); a copy of the partition deed dated December 30, 1944 (marked annexure N ); a copy of the grounds of appeal filed before the Appellate Assistant Commissioner by the assessee in the appeal for the assessment year 1950-51 (marked annexure O ); a copy of the grounds of appeal filed before the Tribunal in the departmental appeal, I.T.A. No. 11075 of 1958-59 (marked annexure P ); a copy of the Bikaner shop account in the books of Hinganghat head office (marked annexure Q ); a copy of Rajnandgaon Branch account in the account books of Hinganghat head o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est was competent? 19. We have heard the parties on this statement. The assessee suggests substitution of the figure of ₹ 1,25,451 for the figure of ₹ 1,51,035 in paragraph 13 of the statement. Similarly, for the figure of ₹ 46,910 in paragraph 14 the assessee wants the figure of ₹ 16,910 to be substituted. In paragraph 15 for the sum of ₹ 51,035 the assessee suggests the figure of ₹ 25,451 and, similarly, for the figure of ₹ 46,910 in the same paragraph, the assessee suggests the figure of ₹ 16,910. Consistently, the assessee suggests alteration of the figures in question No. (3) as ₹ 25,451 for ₹ 51,035 and ₹ 16,910 for ₹ 46,910. It is stated for the assessee that the figures mentioned by the assessee are the correct figures. From the records it appears that so far the proceedings have gone on the figures mentioned in the statement. Subject to this the assessee agrees that the facts have been fully set out in the statement of the case. The department accepts that the facts have been correctly set out and has no suggestion. J.M. Thakkar, H.M. Thakkar, P.D. Thakkar, C.J. Thakkar, M.C. Gupta and G.M. Taw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st him in his capacity as an individual also has been made for the same income for which there had been an order of assessment in his capacity of a Hindu undivided family. The matter has ultimately been decided by the Supreme Court, and it appears that as a result of the Supreme Court decision Seth Mathuradas is liable to be assessed in the status of Hindu undivided family till the assessment year 1947-48. We are here concerned with the assessment year 1947-48. This being the final result flowing from the decision of their Lordships of the Supreme Court, the Income-tax Officer has now cancelled the assessment of Seth Mathuradas in his individual capacity. Mr. Joshi for the department has stated these facts before us in the course of proceedings of this reference. That being the position, and there being now no outstanding assessment against Seth Mathuradas in his capacity as an individual, the question whether the notice issued under section 34 was valid or otherwise has become only academic. In the circumstances it is no more necessary to answer question No. 1. The second question is in the following terms: Whether the Appellate Assistant Commissioner, while de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed as remittance of profits? Before we state the facts it may be stated that in the question which has been referred to, the respective figures given are ₹ 97,954, ₹ 51,035 and ₹ 46,910. At the time the statement of the case was prepared, the assessee had made a suggestion that these figures be corrected, but the suggestion does not appear to have been accepted by the Tribunal. Before commencing the argument on the third question, Mr. Joshi, learned counsel for the department, stated that the correct figures are ₹ 42,361 instead of ₹ 97,945, ₹ 25,451 instead of ₹ 51,035, and ₹ 16,910 instead of ₹ 46,910. In view of the statement of Mr. Joshi, we have reframed the question as stated above by giving the correct figures. Facts relevant for the purpose of this case are: In dealing with the assessment for the assessment year 1950-51, the Income-tax Officer has included the amount of ₹ 25,451 as income brought by the assessee from Rajnandgaon (as territory outside the taxable territory) into the taxable territory, and ₹ 16,910 from Bikaner (another territory outside the taxable territory) into the taxable ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable territories would be taxable and are liable to be included in the total income of the assessee. The Tribunal has observed that in the absence of any other decision it was following the decision in Commissioner of Income-tax v. Annamalai Chettiar*. On this finding of the Tribunal, at the instance of the assessee, the aforesaid third question has been referred. The question that arises is whether the amount which the assessee gets in a general partition between different members of a Hindu undivided family is income and profits accruing or arising to him in his capacity as a separated member. It is not in dispute that the aforesaid amounts have been included by the Tribunal under the provisions of sub-clause (iii) of clause (b) of sub-section (1) of section 4 of the Act. The material part of the section is in the following terms: 4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which--........ (b) if such person is resident in the taxable territories during such year,--.......... (iii) having accrued or arisen to him without the taxable territories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf share of the family properties including the money-lending business. During the relevant accounting year the assessee brought one lakh of rupees from Colombo to British India. The income-tax authorities held that out of the sum of rupees one lakh at the time of the partition, ₹ 36,000 and odd was the share which the assessee had obtained in the profits of the Colombo money-lending business. They therefore held that amount to be taxable. The High Court held that the amount was not taxable. The reasons given by the learned judges for this view are in the following terms at page 401 of the report*: On a partition all that a member can claim is an allotment of his proper share of the family estate with reference to the existing assets and the number of coparceners and this allotment may be made in meal or in malt. One sharer may get the landed properties of the family for his share, another may get the outstandings and a third member may get the cash and movables. What is divided at a partition is the entire family estate consisting of the original family estate with all subsequent accretions to that estate in the shape of income or profits, the whole thing constituting on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s competent? Facts giving rise to the question, in brief, are: We have already said that in the assessment year 1947-48 the assessee was claiming that he should be assessed in that year in his status as an individual. Advance tax however was not paid by him in his capacity as an individual, but as the department was insisting on taxing him in his status of a Hindu undivided family advance tax has been paid by him in that capacity. The Income-tax Officer took the view that the assessee in his status as an individual was a distinct independent entity. He was in this year claiming the status as an individual and, therefore, under sub-section (3) of section 18A of the Act there was an obligation on him to submit an estimate of his income and pay an advance tax. He not having done so, he was liable to pay interest as provided in sub-section (8) of section 18A. The Income-tax Officer accordingly calculated the amount of interest at ₹ 24,214-11-0 and added it to the demand of the amount due from the assessee. The assessee had taken an appeal against the assessment order and one of the grounds taken was that the Income-tax Officer was in error in holding that in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he registration of a firm under sub-section (4) of section 23 or to a refusal to register a firm under sub- section 27, or objecting to any order under sub-section (2) of section 25 or section 25A, or sub-section (2) of section 26 or section 28, made by an Income-tax Officer, or objecting to any penalty imposed by an Income-tax Officer under sub-section (6) of section 44E or sub-section (5) of section 44F or sub-section (1) of section 46, or objecting to a refusal of an Income-tax Officer to allow a claim to a refund under section 48, 49 or 49F, or to the amount of the refund allowed by the Income-tax Officer under any of those sections, and any assessee, being a company, objecting to an order made by an Income-tax Officer under sub-section (1) of section 23A, may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order: Provided that no appeal shall lie against an order under sub-section (1) of section 46 unless the tax has been paid: Provided further that where the partners of a firm are individually assessable on their shares in the total income of the firm, any such partner may appeal to the Appellate Assistant Commissioner ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessed under this Act occurring in section 30 of the Act even when the assessee had filed an appeal against the order of assessment made under section 23 of the Act. The first question that arises is whether the levy of interest under section 18A is levy of tax under the Act. Now tax has not been defined in the Act. In considering this question the decision of their Lordships of the Supreme Court in C.A. Abraham v. Income-tax Officer, Kottayam**, affords guidance. Their Lordships in that case were considering the question whether the penalty provided for in section 28 of the Act could be levied on a partner of a dissolved firm under section 44 of the Act. Section 44 enabled the Income-tax Officer to assess a partner of a dissolved firm in respect of an income of the firm that has been dissolved or discontinued. The assessee was assessed in respect of the income of the dissolved partnership and a penalty under section 28 also had been levied against him under section 28(1)(c). The contention raised on behalf of Abraham before their Lordships was that though section 44 may enable the Income-tax Officer to levy tax on him in respect of income of the dissolved partnership, there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat whatever addition is made in the amount of tax by reason of the provisions of the Act which formed part of the machinery of assessment of tax liability, is a tax. Chapter IV of the Income-tax Act relates to deduction and assessment and contains the various provisions relating to the machinery for assessment of tax liability. Section 18A as well as section 28 fall under this very Chapter. In Abraham's case*, when examining the provisions of various sections relating to the machinery for assessment of tax liability, their Lordships have referred to section 18A also. Sub-section (8) of section 18A provides that the amount of interest determined in accordance with the provisions of sub-section (6) shall be added to the tax as determined on the basis of the regular assessment. It is thus clear that the amount of interest determined under sub- section (8) of section 18A is an addition to the tax. This addition to the tax has been made by reason of the provisions of the section which form part of the general machinery for assessment of tax liability created by the Income- tax Act. That being the position, in our opinion, the amount of penalty is a tax within the meaning of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability to be assessed under the Income-tax Act. It is to be noticed that the decision in Abraham's case and Bhikaji Dadabhai's case were then not available. In view of the decision of their Lordships it can hardly be said that any material distinction between tax and penalty has remained. However, it is not necessary for us to go into the question further. All that has been held by this court is that the assessee is not entitled to a right of appeal merely against an order of the Income-tax Officer imposing penal interest under section 18A of the Income-tax Act for failure to pay advance tax. In the instant case the appeal has not been filed by the assessee merely against an order made by the Income-tax Officer under section 18A of the Act, but the appeal is filed against the order of assessment as a whole and one of the grounds therein is that the addition of interest is bad in law. In Jagdish Prasad's case, the learned Chief Justice in delivering the judgment of the court observed at page 199: Therefore, the scheme of the Act is that penal interest must follow upon the regular assessment. The appeal should be against the regular assessment a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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