TMI Blog1972 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... h May, 1958. The Income-tax Officer had not accepted the partition, but the assessee went up in appeal against that order, and the appeal was eventually allowed on the 12th December, l963, recognising the partition as from 6th May, 1958. Against the order of penalty, the assessee filed an appeal before the Appellate Assistant Commissioner, but the same was dismissed on April 17, 1967. Thereafter, a second appeal was filed by the assessee before the Income-tax Appellate Tribunal which was allowed. The Tribunal upheld the contention of the assessee, that inasmuch as on the date of the final order, the Hindu undivided family had disrupted, no order of penalty could in the circumstances be passed. The Commissioner of Income-tax applied for and obtained a reference to this court. On the reference coming up for hearing., the department relied on a decision of this court in Commissioner of Income-tax v. Gauri Shanker Chandra Bhan and contended that inasmuch as no order under section 25A(1) of the Indian Income-tax Act, 1922, had been passed on the date when the penalty order was imposed, the order of penalty was justified and the Tribunal erred in cancelling the same. The Bench, however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, and we propose to refer to these decisions before commenting on the decision of this court in Commissioner of Income-tax v. Gauri Shanker Chandra Bhan. In Commissioner of Income-tax v. Sannichar Sah Bhim Sah, the claim of the assessee that the partition had taken place with effect from February 13, 1946, was accepted. Penalty proceedings under section 28(1)(c) of the Act were started subsequently on March 23, 1946. The Patna High Court held that, before an order for penalty could be passed against the Hindu undivided family, it must be a joint undivided family as on the date when proceedings for penalty are started as also on the date when the Income-tax Officer imposed penalty and inasmuch as the Hindu undivided family did not exist on these dates, the order of penalty could not be sustained. One of the reasons that impelled the court to take this view was that before an order for penalty could be passed against the Hindu undivided family, notice had to be given, and an opportunity to show cause had to be afforded and inasmuch as it was not possible either to give notice to the Hindu undivided family or to hear it as disruption had taken place, the order imposing penalty coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty was passed on the 20th March, 1958. The assessee contended that inasmuch as the partition of the family had been accepted with effect from 22nd June, 1956, the order imposing penalty was illegal. This contention was accepted by the Tribunal and the penalty cancelled. The Bench after noticing the decisions of the Madras, Patna and Punjab High Courts and a decision of this court in the case of Jagannath Rameshwar Prasad v. Commissioner of Income-tax, referred to a decision of the Supreme Court in the case of Additional Income-tax Officer, Cuddappah v. A. Thimmayya, and being of the view that A. Thimmaya's case clearly posited that the Income-tax Officer had jurisdiction to pass the penalty order, held that the view taken by the Tribunal was incorrect. The main reason given by the Bench for taking this view was that inasmuch as no order recognizing the partition under section 25A(1) was in existence on the date when the impugned order of penalty was passed the jurisdiction of the Income-tax Officer to pass the order in question remained unaffected. With respect, we are unable to accept the view expressed by the Division Bench. In the first place, A. Thimmayya's case related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property among its members. If a claim is raised at the time of making an assessment that a partition has been effected, the Income-tax Officer must make an inquiry after notice to all the members of the family and make an order that the family property has been partitioned in definite portions, if he is satisfied in that behalf. The Income-tax Officer is by law required still to make the assessment of the income of the Hindu undivided family, as if no partition had taken place and then to apportion the total tax liability and to add to the separate income of the members or groups of members the tax proportionate to the portion of the joint family property allotted to such members or groups of members and to make under section 23 assessment on the members accordingly. If no claim for recording partition is made, or if a claim is made and it is disallowed or the claim is not considered by the Income-tax Officer, the assessment of the Hindu undivided family which has hitherto been assessed as undivided will continue to be made as if the Hindu undivided family has received the income and is liable to be assessed. Failure to make an order on the claim made does not affect the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recovery proceedings failed, firstly, on the ground that the assessment order could not be challenged collaterally, and secondly, there was no machinery provided for in the Act for re-opening of assessment after an order under section 25A of the Act was passed and also the assessment if it has become final would sustain the recovery. The reliance by the Division Bench on A. Thimmayya's case for the conclusion which they reached does not, with respect, appear to be well founded. Apart from relying on A. Thimmayya's case the Bench did not give any reasons of its own for dissenting from the view expressed by the Patna, Madras and Punjab High Courts. After a careful consideration of the views of these High Courts, as also the cases referred to earlier, we are of the view that before an order of penalty can be sustained, the assessable entity on which the penalty is being imposed must be in existence on the date of the order--- There are other considerations which impel us to take the view that the fiction created by section 25A(3) would not be applicable to a case like the present one. We have already extracted section 25A of the Act in the earlier part of this judgment. It will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiction juris semper subsistit aequitas (in a fiction of law equity must always subsist) (Blackstone's Commentaries, abridged by George Chase, IV edition, page 637). Stone J said : " While fictions are sometimes invented in order to realise the judicial conception of justice, we cannot define the constitutional guarantee in terms of a fiction so unrelated to reality without creating as many tax injustices as we would avoid." Curry v. McCanless : see also G. T. Helvering v. Stockholmes Enskilda Bank. In case the interpretation canvassed for on behalf of revenue is accepted, certain inequitable consequences follow. An order under section 25A of the Act is appealable, and it is open to the appellate authorities to recognise a partition which has not been accepted by the Income-tax Officer. It is quite common for orders of penalty being passed by the Income-tax Officer against a Hindu undivided family whose claim for partition under section 25A is upheld subsequent to the imposing of penalty, and in case the contention of the department is accepted, the result would be that the assessee would be deprived of the benefit of the appellate order. Such a situation would inflict undue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (1). Nor is it correct to say that the family should be deemed to continue undivided till the date of the Income-tax Officer's order under the section. Where an order is made accepting the partition alleged by the assessee the family must be regarded as having become disrupted on the date of partition as put forward by the assessee. In the present case, therefore, when the notice under section 34 was issued to the assessee on the 6th July, 1942, the family must be taken to have ceased to exist though the partition which was put forward as having taken place on the 21st January, 1940, was accepted only on the 17th August, 1942. " Apart from this, a Division Bench of this court in the case of Jagannath Rameshwar Prasad v. Commissioner of Income-tax, has taken the view that section 25A(3) does not contemplate a case where a claim has been made under section 25A(1) and is pending consideration. In the present case too, the claim of the assessee under section 25A(1) of the Act was pending consideration before the Appellate Assistant Commissioner, at the time when the penalty order was passed, and is such the dictum of that case would apply to the present controversy and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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