TMI Blog1972 (6) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer on the Hindu undivided family of Sri Kapoorchand Shrimal, for the years under reference, without passing an order under section 25A, were valid in law ? (2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 42,009 was a trading loss deductible in the assessment for the year 1958-59 ?" The material facts, so far as they are relevant for answering the above questions, may briefly be stated. The assessment years concerned are 1955-56, 1957-58 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 hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er rejected that contention and held that all the assessments were quite valid in law. In disposing of the appeals against the assessment for the assessment year 1955-56, the Appellate Assistant Commissioner rejected the assessee's aforesaid contention on two grounds : (i) the original assessment for the year 1955-56, made on September 30, 1959, was cancelled by the Appellate Assistant Commissioner in appeal on March 24, 1962, and, therefore, the assessee's letters dated October 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er was dismissed by the Income-tar Appellate Tribunal. Before the Income-tax Appellate Tribunal, the assessee claimed deduction of the said amount either as a bad debt or as a trading loss or as a deduction under section 10(1) of the Act. The Income-tax Appellate Tribunal held that the settlement of the suit effected by the assessee was wholly and exclusively for the purpose of its business and the loss suffered by it was, therefore, a trading loss. The Tribunal, accordingly, held 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r recognising the partition had been passed by the Income-tax Officer. Hence, the assessee, Hindu undivided family, must be deemed to continue under section 25A(3) of the Act. The assessments made were, therefore, valid in law. Even assuming that the Income-tax Officer was in error in not passing an order under section 25A before the completion of the assessments, still it is a mere irregularity of procedure and no injustice had resulted therefrom to the assessee. Therefore, the assessments 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 Assista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer to record an order under section 25A of the Act recognising the partition with effect from July 10, 1960. In Commissioner of Income-tax v. Tatavarthy Narayanamurthy a Full Bench of this court held that the material point of time is the date with effect from which the partition of the joint family has been accepted by the income-tax authorities, and the word " where " occurring in sub-section (3) of section 25A could only mean "cases in which". In view of the Full Bench decision, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's claim under section 25A of the Act, Shah J. (as he then was) observed thus: "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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the partition was made. So long as the Income tax Officer is making an assessment under section 23, whatever might be the period to which that assessment relates, the assessee can seek a finding from him that there has been a partition, whether or not the partition has any impact or relevance to the assessment which is being made. It is surely not necessary for the assessee to wait until the assessment is made with respect to the year during which the partition was made before he could seek an order under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he dates on which he made those assessments and in the view he had taken, yet those assessments ceased to be in accordance, with the provisions of section 25A(2), by reason of the subsequent event of the order of the Appellate Assistant Commissioner recording partition. Section 25A(2) is only a procedural or machinery section, but not a charging section, and if the error has not resulted in any injustice to the Hindu undivided family it can be corrected either by the Commissioner of Income-tax or by the appellate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments made subsequent to the order of the Income-tax Officer, recognising the partition under section 25A have to be completed in accordance with section 25A(2) of the Act. Such claim of partition should, therefore, be considered as relevant not only to the assessment year, in the relevant accounting year of which such a claim is made, but also to all the assessment years, the assessments of which are pending completion. Since the Income-tax Officer has omitted to make an enquiry into the claim and pass an order 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 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. In the judgment of the High Court, it has been stated that this could be put right. In our opinion, it is necessary that the Income-tax Officer should issue the notice of demand against each of the members of the family in accordance with the concluding words of section 25A(2) and that should be done. " Since the appeals against the assessments were pending before the Tribunal, and, in our view, these assessments were not invalid or void, the Tribunal, in our opinion, should have, without cancelling the assessments, directed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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