TMI Blog1959 (3) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... , and (d) a 1/3rd share in the profits and losses of the Hyderabad Sand Syndicate, Kachuguda. In the course of the assessment proceedings for 1950-51, the members of the family claimed that there was a division in status between them and that the joint family properties were divided among the three member of the family on October 22, 1949. In support of this assertion a deed of partition engrossed on a one-rupee stamp paper dated October 22, 1949, was produced before the Income Tax Officer, who accepted the division in status and the partition and passed an order under section 25A to the effect that there was a separation in the family on October 22, 1949. The business of the family were divided as follows : (a) the profits and losses of the Poona business ever since its inception and the share of the Hindu undivided family in the Hyderabad Sand Syndicate was to belong to K. G. Sulakhe, and (b) the capital of the previous Hindu undivided family invested in the other two business, viz., the General Stone Supplying Co., and the Godavary Project contract, were divided among the three brothers in equal share and credited to their personal accounts in the business. It was also claimed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; that the Executive Engineer was not informed of the change in the ownership relating to the Godavary Project contract work; that the capital contributed by each of the partners varied and was so rigged up as to show that there was actual partition and separation in the family, by making minute calculation of rupees and annas. It was further stated that there was nothing mentioned about what the family did with the four lorries and that even after the partition all three brothers stayed under the same roof which has the effect of negativing partition. An appeal against the order of the Commissioner to the Income Tax appellate Tribunal was unsuccessful. Before the Tribunal an alternate plea was also raised, namely, that even if there was no total and compete partition entitling the assessee to an order under section 25A, the Tribunal should hold that there was a partial partition and that these business assets properly became the assets of the partnership. This contention was also negative by the judicial Member who said that in fact no partition either partial or complete took place on October 22, 1949, and that when originally an application for complete partition under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case the Tribunal was right in holding that the order passed by the Commissioner of Income Tax under section 33B is only prejudicial to the Hindu undivided family and no one else ? 4. Whether on the facts and in the circumstances of the case the tribunal was right in holding that T. G. Sulakhe had no right to file an appeal in his individual capacity or as a partner of a firm and that an appeal on his behalf was only competent if filed in the capacity of the kartha of the Hindu undivided family ? Apart from these questions the assessee has raised a further question, viz. : Whether the finding of the Tribunal that there was in fact no intention to partition nor actual partition of the assets of the Hindu undivided family is vitiated by the circumstances that it is based on mere inferences and conjectures, and unsupported by any evidence on record ? This question was not referred by the Tribunal. On refusal to refer this question and the other question relating to the validity of the finding that there was no partition, partial or complete, the assessee has filed Application Nos. 283 to 286 of 1956 relating to the assessment for the year 1951-52 and 1952-53 involving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of making the order under section 25A the Income Tax Officer has to give notice to each member of the family and it is only after that an order can be made, so that when an order is made canceling the previous order, it cannot be made without giving notice to each of them who is affected thereby. The answer to this contention by the learned advocate for the Department is that it is sufficient if notice is given to the kartha of the Hindu undivided family because when reopening the assessment, that family is deemed to be in existence. It would be profitable to examine the language of sections 25A and 33B which are as follows : 25A. (1) Where, at the time of making an assessment under section 23, it is claimed by or on behalf on any member of a Hindu family hitherto assessed as undivided that a partition has taken place among the members of such family, the Income Tax Officer shall make such inquiry thereunto as he may think fit, and, if he is satisfied that the joint family property has been partitioned among the various members or group of members in definite portions he shall record an order to that effect. Provided that on such order shall be recorded until notices of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he date on which the order is communicated to him. (4) An appeal to the Appellate Tribunal under sub-section (3) shall be in the prescribed form and shall be verified in the prescribed manner and shall be accompanied by a treasury receipt in support to having paid the fee ₹ 100 and such appeal shall be dealt with in the same manner as if it were an appeal under sub-section (1) of section 33. The necessary requisites for an order being made under sub-section (I) of section 25A is, firstly, that the family which is seeking to obtain an order that a partition has taken place among the members of its family, should have been hitherto assessed as undivided; secondly, that at the time of making the assessment under section 23, a claim must have been put forward by or on behalf of any member of the family, and thirdly, that on such claim being put forward, the Income Tax Officer is required to make an inquiry into the matter and, before doing so, is bound to serve a notice of inquiry on all the members of the family. An order, therefore, made under this section would be binding on all the members of the joint family, because once a declaration that a partition has been effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint family has been divided; secondly, the order registering the partnership formed by the members of the erstwhile joint family for the year 1951-52; thirdly, the order renewing registration of the firm for the year 1952-53; and fourthly, the assessment order for 1951-52 on the firm. It is well to remember that though the claim of partition was made during the proceedings for 1950-51 the accounting year for which ended on September 22, 1949, the assessee for the year 1951-52 is a partnership consisting of three members and not the Hindu undivided family. Before even the registration under section 26A can be cancelled, the order made by the Income Tax Officer declaring the partners to be divided members of an erstwhile Hindu undivided family has to be set aside and, if so, each one being affected must be given notice. It is an elementary principle of jurisprudence accepted in this country that an order made without hearing the party affected is contrary to the principles of natural justice and is bad. If section 25A makes it obligatory that each member of the joint family is to be given a notice before a declaration that there is a partition in the family, an order reversing tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner of Income Tax v. Swaminathan Chettiar and Lakshminarain Bhadani v. Commissioner of Income Tax. In the first of these cases, it was held that section 25A was applicable to the assessment under section 34 in respect of the income received by the joint Hindu family in 1938-39 even though the family had disrupted by the partition of the January 21, 1940, and the notice of the July 6, 1942, issued to the assessee without indicating in what capacity he was to be assessed under section 34, could be regarded in the circumstances of the case as a valid notice to the family under the section. In the case, the person on whom the notice was served was the kartha of the undivided family and it is the income of the undivided family which was being assessed as escaped income under section 34. The Privy Council had in the case of Sir Sundar Singh Majithia v. Commissioner of Income Tax pointed out that section 25A was designed to meet the difficulty when an undivided family has received the income in the year of account, but is no longer in existence as such at the time of assessment, by providing that if the family property had been partitioned among the members, the assessment sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, 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 notwithstanding the fact that acceptance of that position was at a later date. The assessees contention was stated to be incorrect, having regard to the concluding words of sub-section (I) of the section 34, that the provisions of this Act shall, so far as may be, apply, accordingly as if the notice were a notice issued under that section . These words attract the provisions of section 25A to the assessments made under section 34. The assessment in that case was sustained by the Appellate Assistant Commissioner under sub-section (2) of section 25A read with section 34 on the footing that the family was disrupted on January 21, 1940. This position was held to be correct. Sub-section (2) of section 25A clearly envisages a contingency of that nature. Even where the family is held to be disrupted, the income can be assessed as the income of the joint family and the tax payable thereupon is apportioned among the members separately. Though the Income Tax officer did not make an assessment in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Officer completed the assessment under section 23(4). Appeals were filed unsuccessfully against the order to the Appellate Assistant Commissioner and to the Appellate Tribunal. Both the appellate authorities held that even though the family was disrupted on the March 31, 1943, for the period between that date and the June 1, 1943, when the assets were transferred to the limited company succeeding the Hindu undivided family, the Hindu undivided family must be assessed under section 25A(2). In these circumstances, it was held to be unnecessary that proceedings for assessment under section 25A should commence by notice to every member of the family and by a process of fiction the Hindu undivided family is deemed to be an existing entity for that purpose even though there had been partition of the members and the Income Tax authorities had passed orders under section 25A(I). In all this case, it may be observed, the order passed by the Income Tax Officer was not set aside, but assessments were being reopened under section 34 or they were being made under section 25A(2) either by itself or read with section 34. Section 25A(2) sets out the procedure in cases where an order ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. We are unable to appreciate hoe this case can be distinguished because the basis of the judgment was when an authority vested with judicial function has to decide or hear a case or an appeal, he can only do so provided he has heard all parties who are likely to be affected by the order which he is going to make. Chagla, C.J., observed at page 652 thus : It is a fundamental principle of a natural justice that no judge or no person upon whom judicial powers are conferred can come to a judicial or a quasi-judicial decision without hearing all parties who are to be affected by his decision and we must always assume that the Legislature who has knowledge of judicial principles and rules of natural justice impliedly, if not expressly, incorporate these rules whenever they confer judicial functions upon a person or an authority. If these rules of natural justice are to be excluded, then we must find in the statue an express provision to that effect. With great respect, we agree with this proposition of law. Further, if the contention of the learned advocate for the Department, for that matter the reasoning of the Tribunal, that the person served with the notice, at any rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lid, the question is whether the cancellation of these orders is bad in law. It may be stated that a Hindu undivided family and a firm or a limited company cannot co-exist with respect to the same assets and are mutually exclusive. While this is so, after the pronouncement of their Lordship of the Privy Council in Sir Sundar Singhs case, it is possible for some of the members of the joint family to take one of its assets and hold it as a separate asset either in partnership or as a limited company in which case the family, no doubt, which has not become divided in other aspects, will be assessed in respect to the asset taken out, and a separate assessment will be made on the firm or the limited company as the case may be. One of the salient features of a joint Hindu family is that it is a joint tenancy which has as its basis the right of survivorship amongst the members constituting the family while the chief characteristic of a firm is its separateness of interest and absence of survivorship. Therefore without a disruption the conversion of a Hindu undivided family into a firm in its entirety is inconceivable and so long as it remains undivided, the question of succession to it as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion the fact of separation. The assessees explanation, that, since it dealt with the assessment year 1948 for which the question of division or otherwise did not fall for determination, it was not mentioned, was brushed aside. Though the Tribunal accepted the ground mentioned by the Commissioner, in our view, it impliedly negativated this ground when it categorically stated that the effect of the Commissioners order so far as the assessment for 1950-51 is concerned is practically nil, in so far as the assessment had to be made on the Hindu undivided family, the date of alleged partition being after the end of accounting year for that assessment year. If this is so, certainly there is no necessity to mention the fact of the partition with respect to a period which is not relevant. (2) The family had an overdraft account in the Hyderabad State Bank, the transactions of which were in the name of the General Stone Supplying Company. The credit balance standing in the account was ₹ 45,000. Even after the date of the partition this account was maintained in the same form and the bank was not informed of the separation. The Commissioners order does not show whether the sum of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the same house without paying any rent. The Tribunal agreed with the reasons given by the Commissioner and stated that they are particularly impressed with the circumstance that even though the Hindu undivided family filed a return of its income for the year 1949-50 on December 14, 1949, that is about two months after the alleged separation of the family, no claim for such a partition was at all made. If it were a fact that partition had taken place on that particular date, it stands reason that such a claim would have been made at the time of filing the return or in any case the factum of the partition would have been brought to the notice of the Income Tax Officer dealing with the assessment of that year. We have already stated the invalidity of the assumption which was itself negatived by the Tribunal in the earlier portion of its orders If this is the particular fact which impressed the Tribunal, it shows on what thin ground the partition was sought to be set aside. We recognise that on a reference under the Income Tax Act, the High Court is not entitled to review a finding of fact and come to a different conclusion. While this is so, it is equally well-established that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a conditional power in the sense that, if the condition of the partition being fair and equal is not satisfied, the power ceases to have operative force. The partition will be valid in such circumstances until it is avoided by the minors, and until it is repudiated by the majors sons... It has never been held and no decision has been brought to out notice taking the view that in such circumstances the partition is wholly void and is of no legal effect. The view therefore of the Appellate Tribunal that the partition is void and is of no legal effect so far as the businesses are concerned on the ground that it is an unequal division cannot be accepted as applying the law correctly. From the statement of the case it is clear that all the immovable properties were divided between the three members, though according to the Income Tax authorities in unequal shares, which as we have already shown in irrelevant for a consideration whether a partition in fact took place. The two main business have been formed into a partnership in which the three members of the erstwhile Hindu undivided family have equal shares. The fact that some estimate of the capital has been made for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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