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TMI Blog1982 (1) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... , though its karta now was Shri Nath. This business was continued up to 31-7-1969. According to the assessee, on 31-7-1969, there was a partition of the family when the capital of Rs. 14,716.66 was divided between three brothers, namely, Shri Nath, Suresh Chand and Ram Naresh, who were also its coparceners. The case of the assessee is that the partition is evidenced by the entries in the books of account, although decision to partition was taken orally. 3. As per the version of the assessee, after the partition of the family, with effect from 31-7-1969, Shri Ram Naresh left. Shri Nath and Suresh Chand started the business in partnership, in the name of Shri Nath Suresh Chand. Again, as per the assessee, this firm was dissolved on 31-3-1972. After its dissolution Shri Suresh Chand started his separate business of sarrafa, with effect from 1-4-1972, in the name and style of Suresh Chand Manish Kumar. Besides, Shri Nath also started his separate business in the name of 'Shri Nath'. This too was in sarrafa. 4. A search was conducted at the premises of the assessee on 18-11-1976, by the income-tax department. In this search, books of Moti Lal Shri Nath, Shri Nath Suresh Chand and Sure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Chand also filed returns declaring the incomes at nil figures. Along with these returns, he also wrote a letter to the ITO on 3-4-1977. In this letter, he stated that the notices appeared to have been wrongly issued since no business was being done in the name in which the notices were issued. It was further stated in the letter that since the notice had been issued, they were being complied with by filing the returns showing nil income. It was also requested in the letter that the proceedings started by the ITO may be filed. It may, however, be stated here that the column to show 'Status', in all these returns was left blank by Shri Suresh Chand although the returns were duly signed by him. 6. After the receipt of the letter from the assessee, the ITO issued notices under section 143(2), on 2-8-1977, when the date of hearing was fixed on 9-8-1977. On 9-8-1977, the assessee again wrote to the ITO stating that the notices had been issued to wrong persons, who did not carry on any business and, therefore, there was no escapement of any income. It was also stated that the notices had been challenged by filing the return showing nil income by the person who received them along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Pratap Chandra v. ITO [1975] 100 ITR 551. It was held in this case that for the purposes of the Act, a HUF will be deemed to continue as such, notwithstanding that in proceedings in the civil court it may have in fact been disrupted. Such disruption cannot be recognised in any proceedings under the Act so long as an order to that effect has not been passed under section 25A(1) of the 1922 Act [corresponding to section 171(3) of the 1961 Act]. The ITO then proceeded to determine the income of the HUF for different years and made assessments accordingly. We will have occasion to deal with this aspect of the matter separately. 8. The assessee appealed to the AAC. It was first objected before the latter that the notices issued under section 148 were bad in law since they had not been issued to any 'person' as defined in section 2(31) of the Act read with the charging section 4. It was further submitted that in the absence of valid returns, the issue of notices under section 143(2) as well as the orders made under section 143(3) were illegal. It was also argued that since the person to whom the notices under section 148 had been issued, had not filed any returns, the orders we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was held in this case that where the notice of reassessment was issued to the assessee in the status of a firm and there was no valid notice issued in the status of a HUF, an assessment in the status of HUF would not be valid. Reference was also made to a decision of the Calcutta High Court in the case of Rama Devi Agarwalla v. CIT [1979] 117 ITR 256. It was held in this case that if a notice under section 34 of the 1922 Act (corresponding to section 48 of the 1961 Act) was ambiguous or defective or otherwise invalid, the same could not be cured by taking into account and/or looking into other documents whereby such defects could be rectified and/or omissions filled in. 10. The learned counsel for the assessee then referred to some other cases. One of them is of the Mysore High Court in Lakshmibai v. ITO [1972] 86 ITR 804. In this case also it was held that a valid notice is an essential pre-requisite for reopening an assessment under section 147. In this case, a notice under section 148 purporting to reassess a HUF was addressed to the mother of the karta. It was held that the notice was illegal and without jurisdiction and liable to be quashed. In another decision of Ravinder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO and which alone was required in terms of section 171. He also submitted that subsequent to the assessment year 1976-77, the AAC had directed the ITO to examine the case in the light of the provisions of the above section. He also submitted that under Hindu law even an oral partition of HUF could take place, though in the present case, there were entries in the books of account evidencing the fact of partition. He contended that since the ITO had ignored the provisions of section 171, the assessments completed by him were illegal and invalid in law. 13. The next submission of the learned counsel for the assessee was that the fiction contained in section 171 about continuity of the HUF was a limited one and that it did not further extend to indicate that it also had income liable to tax. According to the counsel, if the HUF as such had not received any income, it was inconceivable that any income of any other person, though that person was an erstwhile member of the family, could be assessed as income of that HUF. The section enabled by virtue of a legal fiction, to assess an entity, which had really ceased to exist, treating it as in existence, but such assessment must be of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that there was either a total or partial partition. In this connection he referred to the decision of the Supreme Court in Narendra Kumar J. Modi v. CIT [1976] 105 ITR 109 to point out that the income-tax authorities were not bound even by a partition decree and that they had their own view to take. 15. The learned departmental representative then dealt with the validity of the notices issued under section 148. He did not deny that they had been issued not in the name of Munna Lal Moti Lal as such, but they had been issued in the names of three persons, namely, Shri Nath, Suresh Chand and Ram Naresh, who were the coparceners of the family and whose identity was not in doubt. He further submitted that even the notice under section 143 was issued on 2-8-1977 to the above identity stating that its karta was Shri Nath which was also a fact. He further submitted that such a notice could not mislead the assessee particularly in view of the clarification issued by the ITO on 16-3-1978 which we have already quoted above in our order. 16. The learned departmental representative then referred to a number of decided authorities. He first cited the case of Radhey Lal Balmukand In re. [1942 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nodia Brothers v. ITO [1965] 57 ITR 765. He finally relied on the decision of the Allahabad High Court in Pratap Chandra. 17. The learned departmental representative then supported his submission by referring to section 292B. According to this section, no return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act, shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding, if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act. 18. The learned departmental representative finally submitted that the assessee had claimed partition of the family only in the course of assessment proceedings in the assessment year 1977-78, in respect of the business assets with effect from 31-7-1969, and, therefore, the claim was being investigated in that year. He again contended that there was no formal claim in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s this language which was used by the assessee and its various members in their different letters to the ITO. The ITO further stated that subsequently Shri Nath became the karta of the HUF and carried on the business till the assessment year 1970-71 after which there was claimed to be a verbal partition in the family. The ITO was of the view that such a partition could not be recognised, unless there was a formal claim from the assessee and an order under section 171(3) was also passed. In other words, he intended to assess Munna Lal Moti Lal. For these reasons, the status described by him was also that of HUF. It has, therefore, to be held that the ITO intended to take reassessment proceedings only against Munna Lal Moti Lal. It is no doubt correct that he named the HUF as 'Shri Nath Suresh Chand Ram Naresh'. However, he correctly stated the name of the karta as Shri Nath. We cannot blame the ITO for giving a different name. We have already stated above that even according to the assessee, after the death of Shri Moti Lal in April 1967, the business was not carried on in the name of Munna Lal Moti Lal, but in a different name of Moti Lal Shri Nath of which Shri Nath was the karta. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner. 21. In our opinion none of the decisions cited on behalf of the assessee take a contrary view. In Lakshmibai the facts were different. There the notice purporting to reassess a HUF was addressed to the mother of the karta. That is not the case here. In the case of Ravinder Narain the notices were addressed to the individuals and there as nothing to indicate that they were intended to relate to the assessee as an AOP which was distinct from the individual parties. That is also not the case here. In the case of Bhogwan Devi the notice of reassessment was served on Smt. B.D. Saraogi and others, but did not indicate whether Smt. Bhagwan Devi and others was a firm or an association of persons. In the case of Madhav Motor Stores, the notice of reassessment was issued to the assessee in the status of a firm and there was no valid notice issued in the status of a HUF. The decision of Rama Devi Agarwala was rendered before section 292B came on the statute. The Supreme Court in the case of Y. Narayana Chetty laid down that the notice prescribed by section 34, for the purpose of initiating reassessment proceedings, is not a mere procedural requirement. There is no quarrel about this pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO that there has been a partition in the family and secondly, the claim of such partition should be asserted before him. Section 171 does not require anything beyond this on the part of the family. We find that both these requirements were complied with in the present case. It was duly brought to the notice of the ITO that there had been partition in the family. This fact has, as already pointed out above, been recorded by the ITO in the reasons for re opening the assessments, submitted for the sanction of the Commissioner. It was a different thing that be did not accept that partition. The assessee also, through its various letters, asserted that the family of Munna Lal Moti Lal was no more in existence. We, therefore, hold that the assessee had made a claim before the ITO in terms of section 171(2). It was, therefore, the duty of the ITO to make an enquiry thereinto, then proceed further in terms of sub-sections (3) and (4) of section 171. Since this has not been done, we hold that the assessments made by him after the claim that the partition had taken place on 31-7-1969, are not valid. However, this finding will apply only to the assessment years 1970-71 to 1976-77. We ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business independent of the HUF. In this connection, we agree with the submission of the learned counsel for the assessee that it is for the person who asserts that a certain property is joint family property to prove that it is so. It is, therefore, for the department to prove that the property or investment belonging to Smt. Kamla Devi belonged to the assessee and, therefore, income arising from these investments also belonged to the assessee. The department has not brought any evidence to prove this fact. We, therefore, hold that the income of Smt. Kamla Devi amounting to Rs. 4,000 could not be included in the total income of the assessee for the above assessment year. We give a similar finding regarding the unexplained investment in the construction of the house. There is nothing to show that the house that stood in the name of Smt. Kamla Devi did not belong to her but belonged to the assessee-HUF. The burden for proving so lay on the department, which has not been discharged. We, therefore, exclude the entire amount of Rs. 41,500 also from the assessment. The same finding will apply to the notional income of Rs. 500 from property if the same related to the above house. 27. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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