9911796707
TMI Blog1972 (6) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... 57-58 to 1961-62, the relevant accounting years being the years ending Deepavali except for the cloth business. The assessee is a Hindu undivided family named " Kapoorchand Shrimal ". In the course of the assessments for these years, by its letters dated October 10, 1960, January 16, 1961, and March 11, 1962, the assessee brought to the notice of the Income-tax Officer, that all the movable and immovable properties of the Hindu undivided family were partitioned by metes and bounds on July 10, 1960, and the Hindu undivided family had become disrupted and extinct and requested him to pass an order recording complete partition under section 25A of the Indian Income-tax Act, 1922 (hereinafter called "the Act"). In his letter dated March 17, 1962, the Income-tax Officer acknowledged receipt of the assessee's letter dated March 11, 1962, on March 12, 1962, and intimated the assessee that the matter was receiving his attention and that it would be disposed of in accordance with law. In their letter dated March 21, 1962, the assessee's chartered accountants, M/s. S.G. Dastagir & Company, invited the attention of the Income-tax Officer to the earlier letters and raised a contention that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 10, 1960, January 16,1961, or March 11, 1962, which dates fell during the period when the assessments stood cancelled, could not be said to be a claim for partition made at the time of making an assessment under section 23 of the Act for that year ; and (ii) the assessments did not become invalid or illegal by reason of the omission of the Income-tax Officer to make an order under section 25A(1) of the Act for the reasons stated by him in the assessment order for the year 1957-58. Against the orders of the Appellate Assistant Commissioner rejecting its contention relating to the validity of the assessments, the assessee preferred second appeals before the Income-tax Appellate Tribunal. In those appeals, the assessee, inter alia, raised an objection that the assessments were invalid in law because the Income-tax Officer had not passed an order on its applications under section 25A of the Act before he completed those assessments. The Tribunal held that the assessee's letters dated October 10, 1960, and January 16, 1961, contained a valid claim for recording partition of the joint family and that the claim covered all the assessment years in regard to which the assessments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Appellate Assistant Commissioner had rightly allowed the said sum as a deduction in the computation of the business income of the assessee for the year 1958-59. On the above facts, the Income-tax Appellate Tribunal, at the instance of the Commissioner of Income-tax, Andhra Pradesh, Hyderabad, referred the aforesaid two questions of law to this court for its decision under section 66(1) of the Indian Income-tax Act, 1922. The first question that falls for our decision in this reference is whether an assessment made without first disposing of the assessee's claim for complete partition under section 25A of the Act is valid in law. The department contends that such an assessment is valid, but the assessee contends that such an assessment is invalid. For a proper appreciation of the above contention, it is necessary to read the relevant portion of section 25A of the Act. It reads: " 25A. Assessment after Partition of a Hindu undivided family.-(1) Where, at the time of making an assessment under section 23, it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition has taken place among the members of such family, the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made cannot be considered as void or invalid. In the view it had taken that the order under section 25A should be passed before completing the assessments, the Tribunal should have directed the Income-tax Officer to make the assessments afresh according to law for all the assessment years and should not have cancelled those assessments as void. As against those arguments, the learned counsel, Sri Y. V. Anjaneyulu, for the assessee, contended, that section 25A of the Act is a mandatory provision of law. In making the assessments, the Income-tax Officer could not have ignored such a mandatory provision of law. Although the Income-tax Officer rejected the claim of partition, the Appellate Assistant Commissioner, in appeal, by his order dated November 8, 1967, accepted the claim of partition with effect, from July 10, 1960. Since the Appellate Assistant Commissioner had accepted the claim of partition with effect from July 10, 1960, the crucial date was July 10, 1960, and not November 8, 1967, when the Appellate Assistant Commissioner passed the order. On July 10, 1960, the assessee, Hindu undivided family, became disrupted and was, thereafter, not in existence at all. All the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, it is obvious that, although the partition of the Hindu undivided family had been recognised by the Appellate Assistant Commissioner by his order dated November 8, 1967, the effective date of partition is July 10, 1960, with effect from which the Appellate Assistant Commissioner had accepted the partition of the Hindu undivided family under sub-section (3) of section 25A in cases in which an order under section 25A(1), recognising a partition, has not been passed, the Hindu undivided family will be deemed to continue for the purposes of the Act. Under the Act as it originally stood, a Hindu undivided family was regarded by section 3 as a unit of assessment, but no machinery was set up for levying tax or for enforcing liability to tax on the members of the family, if before the order of assessment the family was divided. Absence of this machinery was more acutely felt because of section 14(1), which provided that tax shall not be payable by an assessee in respect of any sum which he received as a member of a Hindu undivided family. Income received by a Hindu undivided family could not, therefore, be assessed and collected from the members of the family, if at the time of making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 these 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." Since the Income-tax Officer's failure to pass an order under section 25A on an assessee's application does not affect the jurisdiction of the Income-tax Officer to make the assessment, any error or irregularity in the assessment may be rectified in the manner provided by the statute alone, and the assessment is not liable to be challenged collaterally, or by way of a suit. In other words, it means that an Income-tax Officer who is bound to enquire into an assessee's claim of partition under section 25A, when made by an assessee, if for any reason fails to do so, it is only an irregularity or an error which does not affect the jurisdiction of the Income-tax Officer to make the assessment and, therefore, such an error can be rectified in accordance with the procedure laid down by the Act, i.e., by any officer superior to the Income-tax Officer, vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 25A. " From the aforesaid discussion, and on a careful perusal of the facts mentioned by the Tribunal in the statement of the case submitted by it, it is evident that, in the course of the process of assessments, the assessee-Hindu undivided family, which was hitherto assessed as undivided, made a claim of partition of the joint family properties amongst its members in definite portions. Although the claim was made on October 10, 1960, i.e., in the accounting year relevant to the assessment year 1961-62, it did not mean that it related only to that assessment year and not to other years, the assessments of which years were pending. The Income-tax Officer was bound to enquire into the claim made by the assessee under section 25A of the Act, after notice to all the members of the family. The order under section 25A has not been made by the Income-tax Officer before the assessments for the assessment years under reference were made, for whatever reason that may be. Though the Income-tax Officer rejected the assessee's claim of partition, still the Appellate Assistant Commissioner, in appeal, accepted the assessee's claim with effect from July 10, 1960. The order under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late authorities, i.e., the Appellate Assistant Commissioner or the Income-tax Appellate Tribunal. Since the error in making the assessments in contravention of a machinery section does not affect or relate to the jurisdiction of the Income-tax Officer to make the assessment, the assessments made in that manner cannot be said to be void. Such an error or irregularity, in our considered opinion, can be rectified by the Commissioner of Income-tax or the appellate authorities, but not by a collateral proceeding or a suit in a civil court. What exactly is the meaning of section 25A(2) of the Act, and as to which is the manner in which assessments on members have to be made in case an order recognising partition has been recorded by the Income-tax Officer under section 25A(1), are clearly expressed by the Full Bench of the Allahabad High Court in Kailash Nath Bhargava v. Commissioner of Income-tax. The majority of the judges observed that: "The word 'assessment ' in the last portion of section 25A(2) is not used in the sense of fresh proceeding initiated under section 23. The computation of income may very well be made in a proceeding against another person and the liability determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 25A(1) before completing the assessments, it was only an error or an irregularity of procedure, and it did not touch the jurisdiction of the Income-tax Officer to make the assessments. We are unable to agree with the learned counsel for the assessee or the Tribunal that the assessments made by the Income-tax Officer in this case for all the assessment years under reference are void. Nor can they be said to be invalid. We find support for our view in the decision of the Supreme Court in Lakshminarain Bhadani v. Commissioner of Income-tax. In that case, the Hindu undivided family, of which the appellant was the karta, was assessed to income-tax for the year 1939-40. In 1944, the Income-tax Officer considered that certain income of the family taxable in 1939-40 had escaped assessment. In the meanwhile, the joint family had become divided and necessary steps had been taken by the members to have an order passed under section 25A(1) of the Income-tax Act. The Income-tax Officer issued a notice in the name of the joint Hindu family and served it on the appellant under section 34, read with section 22 of the Income-tax Act, to make a return in respect of the escaped income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irected the Income-tax Officer to modify the assessments in accordance with section 25A(2) of the Act. We are, therefore, unable to justify the order of the Tribunal cancelling the assessments. Hence our answer to question No. (1) referred to us by the Tribunal is that the assessments made by the Income-tax Officer, without an order under section 25A, are valid but only require modification. In giving effect to our order, the Tribunal shall direct the Income-tax Officer to modify the assessments in the light of section 25A(2) of the Act. Then we conic to the second question, referred to us. This question relates to the assessment year 1958-59. In allowing the assessee's claim of bad debt of Rs. 42,009 the Tribunal found as a fact that the moneys were advanced to Lalgirji in the course of its business and that such advance was intimately connected with its business operations. Since the suit filed by the assessee against the debtor had to be compromised in view of the cross-claim made by the debtor, the amount had become either irrecoverable as a loan in the relevant accounting year, or had become a trading loss to the assessee in the relevant accounting year. The Tribunal also fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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