TMI Blog1971 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... he said family was assessed to pay income-tax for the assessment years 1961-62, 1962-63 and 1963-64. As the dues were not paid, the recovery certificates were issued. For the year 1961-62 the joint family was assessed on June 29, 1962, to a reduced assessment of Rs. 1,479.41. The recovery certificate was issued on March 13, 1963. For the year 1962-63, the assessment was made on March 14, 1967, and the amount under that assessment was Rs. 26,890. Likewise, for the year 1963-64, assessment was made on August 21, 1967, and the amount due under it was Rs. 5,549 and the certificates for the last two years were issued on September 30, 1967. With an addition of Rs. 5,449.59 towards interest due till February 13, 1969, the total amount due was Rs. 39,368. In order to recover this amount on the basis of the said certificates, the Tax Recovery Officer attached several properties including a wet land of 3 acres and 70 cents situated at Pentapadu, i.e., R. S. Nos. 41/1 admeasuring 90 cents and R.S. No. 42/2 admeasuring 2 acres and 80 cents. We are not concerned with the attachment of other properties except these lands. After the attachment of the said lands, the petitioner filed a claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount due till the date of the partition and the attachment cannot be found fault with. The question raised therefore would relate only to the part of the accounting year 1963-64 after September 2, 1962. Section 171 of the Income-tax Act, 1961, which provision admittedly is applicable to the facts of the present case relates to the assessment after partition of a Hindu undivided family. In order to view the implications of the argument in correct perspective it is essential to bear in mind the legislative antecedents of section 171. Its corresponding section in the 1922 Act was section 25A. It was inserted by an amending Act of 1928. Its chief aim was to meet the difficulty of levying and collecting the tax in cases where a Hindu undivided family had received income in the accounting year but the Hindu undivided family was no longer in existence as such at time of assessment. The difficulty was the more acute by reason of the provision contained in section 14(1) : " The tax shall not be payable by an assessee in respect of any sum which he receives as a member of a Hindu undivided family . ....." Section 25A was also found to be inadequate to meet the intended situatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as if no partition had taken place ; and the provisions of clause (b) of sub-section (4) shall, so far as may be, apply to the case. (6) Notwithstanding anything contained in this section, if the Income-tax Officer finds after completion of the assessment of a Hindu undivided family, that the family has already effected a partition, whether total or partial, the Income-tax Officer shall proceed to recover the tax from every person who was a member of the family before the partition, and every such person shall be jointly and severally liable for the tax on the income so assessed. (7) For the purposes of this section, the several liabilities of any member or group of members thereunder shall be computed according to the portion of the joint family property allotted to him or it at the partition, whether total or partial. (8) The provisions of this section shall, so for as may be, apply in relation to the levy and collection of any penalty, interest, fine or other sum in respect of any period up to the date of the partition, whether total or partial of a Hindu undivided family as they apply in relation to the levy and collection of tax in respect of any such period. Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made both in sub-section (1) and sub-section (3), depend upon the concurrence of the following : (1) at the time of making an assessment a claim must have been made by or on behalf of any member of a Hindu family that a partition, total or partial, has taken place among the members ; (2) the family must have been hitherto assessed as undivided ; (3) the Income-tax Officer shall make an inquiry into the claim and before he makes such enquiry he is bound to give notice of the enquiry to all the members of the family ; and (4) the Income-tax Officer must be satisfied that the joint family property has been partitioned among the various members or groups of members by a physical division or otherwise as provided in the Explanation. What is plain is that if at the time of assessment a claim is made by any member of the family that a partition has taken place, the Income-tax Officer has no other choice but to give notice to all the members and to make enquiry and to give a finding relating to the claim. The sub-section is couched in mandatory language and, therefore, makes it imperative on the part of the Income-tax Officer to comply with the requirements of that sub-section, whenever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that once a total or partial partition is found to have been effected by an order under section 171, then it will not only operate for the accounting year in proceedings relating to which the order is made but all subsequent assessments will have to be made in conformity with the finding. Such an order under the section is expected to be passed only once and when so passed the joint family would get disrupted for the purposes of the Act from the date thus found and a joint family constituted by some of the members of the disputed family would be a different assessable entity. Coming then to sub-sections (4) to (7), it is evident that in every case where an order has been made regarding the partition of joint family property among the members or groups of members, the assessment of the total income received by on behalf of the joint family as such must be made in accordance with the procedure laid down in these sub-sections. The procedure is to compute the total income of the joint family up to the date of partition and also determine the tax payable by the joint family as such, as if no partition had taken place and as if the joint family was still in existence and then to hold e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention that the inquiry into the claim and order relating thereto can separately be passed even after any assessment is made. We have already seen that in a case to which section 171 is attracted, there is no scope for making an assessment order under section 143 or 144, before it is found after an inquiry into the claim that there has not been any partition. Such an assessment order, if made before inquiry into the claim, would be inconsistent with section 171. Since the section is couched in imperative language, in fact no assessment order can be passed either under section 143 or section 144 or under section 171 unless and until notices are served on all the members of the family, inquiry is held and a finding is given in respect of partition claimed. And it is only in the light of the finding given that the assessment order either under section 143 or section 144 or under section 171 can be made. In view of the clear and unambiguous language of section 171, the contextual relationships of various sub-sections with each other and the composite structure of the whole section can leave no one in doubt that if disregarding the claim of partition made by any member, whether deli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to be illegal. A closer examination of this case seems to us necessary. The facts of that case were that K and his two sons, T and V, constituted a Hindu undivided family. Pending proceedings for assessment of tax for the years 1941-42, 1942-43, 1944-45, 1945-46 and 1946-47 the family was disrupted and V claimed before the Income-tax Officer that the property of the joint family had been partitioned in definite portions. This claim was not disposed of till June 30, 1952, and meanwhile assessments for those 5 years were completed. Appeals were preferred against the orders of assessment to the Appellate Assistant Commissioner and then to the Appellate Tribunal, but they were not challenged on the ground that they were made without disposing of the claim for partition. On June 30, 1952, an order was made under section 25A recording that the property of the family was partitioned on November 2, 1946. As the tax assessed was not paid, the Income-tax Officer made an order under section 46(5) on June 25, 1958, calling upon the managing director of the company, which had ultimately taken over the business of the family, to withhold the amount of tax due from the salaries payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and void. The said decision, therefore, cannot be said to be an authority for the proposition that in spite of a claim being set up, it can be inquired into separately although an assessment order can be made and such an assessment order would perfectly be valid. It is true that the Supreme Court has observed at page 672 as follows : " 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 the se 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 provided by the statute al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied as if no such order was made. " What is plain from the observation is that subsequent to the assessment any finding given would not be effective and would not amount to reopening of the assessment. When once it is found that the claim put up in an assessment proceeding has to be disposed of if it is to be effective before the assessment order is made and if not so made but made after the assessment order is passed it would be ineffective, then the question remains as to what is the effect of an assessment order made in defiance of section 171. That point was not canvassed before the Supreme Court at all, and that is the point with which we are confronted in the present inquiry. It is true that the Supreme Court observed that " 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 ". That observation, if taken in general, can well be understood, because that is the law declared in the first part of sub-section (1) of section 171 as discussed above. The question, however, is when a claim is set up and assessment order is passed, without co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e but refused, or due to the fact that right up to the finalisation of the assessment proceedings by the Tribunal, the proceedings under section 25A(1) might have continued to be pending for some reason or the other. " A reading of that judgment, however, makes it abundantly plain that these observations came in by a side wind and section 25A was not directly under consideration of the Full Bench. The real matter was under section 28 of the Income-tax Act. We have already given the reasons while discussing the Supreme Court's decision above and if we may say so the same observations of ours apply to the Full Bench case also. Kalwa Devadattam v. Union of India can easily be distinguished on the facts of that case. The question there was whether a suit questioning the validity of an assessment order and for setting it aside is maintainable. It was held that under section 67 of the Indian Income-tax Act no such suit was maintainable. In that case also, no question specifically bringing under consideration sub-sections (2) and (3) of section 171 or equivalent law of the previous Act was brought under discussion. The said decision, therefore, cannot be an authority on the propositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at assessment was made on the basis of the applicant being an individual. " What follows is that not only the Income-tax Officer hearing a case relating to an assessment in which claim of partition is made under section 171 but also the Appellate Assistant Commissioner hearing the appeal or the Commissioner seeking to revise and cancel the order recording partition are all bound to serve notice of the hearing of the claim under section 171 or appeal or revision on all the members of the family, and if the authorities fail to comply with this essential requirement, any order passed by them prejudicially affecting the rights of any member of the family would be held invalid. The locus standi of the petitioner to file the claim petition and the writ petition was canvassed on the ground that on the date of the so-called partition itself the petitioner had transferred the land in question by way of gift to his minor son. It is not denied by the petitioner that on the date of the partition itself he had executed a gift deed in favour of his minor son. The minor son, therefore, becomes the owner of the land and it is he who ought to have preferred the claim. But, in our view, the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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