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PETITIONER: INCOME-TAX OFFICER, AWARD, LUCKNOW

       Vs.

RESPONDENT: BACHULAL KAPOOR

DATE OF JUDGMENT: 14/12/1965

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. SHAH, J.C. SIKRI, S.M.

CITATION:  1966 AIR 1148            1966 SCR  (3)  68  CITATOR INFO :  D          1966 SC1536  (4)

ACT: Indian  Income-tax  Act,  1922, (11 of  1922),  s.  34-Hindu undivided   family-Partition-Members  assessed   separately- Notice to reassess the family--If can be given.

HEADNOTE: The respondent used to be assessed to income-tax as karta of a Hindu undivided family.  In a suit filed by members of his family  against  the  respondent  a  compromise  decree  was passed.   The Income-tax officer accepting the  respondent’s claim under s. 25A of the Income-tax Act that the family was partitioned,   assessed  the  members  of  the   family   as individuals.   Later the Income-tax Officer issued a  notice under  s.  34 of the Act to the respondent as karta  of  the Hindu undivided family requiring him to file a return for  a year  in which the members had been assessed as  individuals on  the  ground  that the respondent’s  income  had  escaped assessment.  Thereupon the respondent. filed a writ petition in  the  High Court for quashing the said  notice.   As  the assessment of the same income in the hands of the members of the  family  for the same year was not set  aside  the  High Court  held that the notice was invalid as the  same  income could  not  be  assessed again in the  hands  of  the  Hindu undivided  family by taking proceedings under s. 34  of  the Act.  In appeal to this Court : HELD:     (i)  The  Income-tax Officer had  jurisdiction  to initiate  proceedings  under s. 34 of the  Act  against  the respondent as the karta of the Hindu undivided family. A  Hindu undivided family is a separate unit of  assessment. It is a distinct assessable entity.  It is a ’person’ within its  definition in the Act.  It is liable to be assessed  to income-tax in respect of its income.  A member of that Hindu undivided family is not liable to pay any tax in respect  of any sum which he receives as a member of that family out  of the  income  of that family.  If the  said  Hindu  undivided family  has escaped assessment for any year  the  Income-tax Officer, subject to the conditions laid down in s. 34(1) ’of the Act, may issue a notice thereunder calling upon the said Hindu undivided family to submit a return of its income  for

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that year and proceed to assess it in terms thereof.  It  is manifest  from  a combined leading of ss. 3,  14(1)  &  (2), 22(1)  and  34(1) that the Income-tax Officer  can  issue  a notice to a Hindu undivided family under s.  34  of the  Act on the ground that it has escaped assessment. [72 F-H] The  exercise of the option by an Officer to do one or other of  the  two alternatives(viz., to assess either  the  Hindu undivided  family  or members  thereof  separately)  assumes knowledge   on   his  part  of  the  existence   of   thetwo alternatives.   If  the  case of the Revenue  be  true,  the Income-tax     at  the  time  he  assessed  the   individual members of the family had no knowledge that a united  family existed; he presumably proceeded on the basis that the  said family  bad really ceased to exist tinder the terms  of  the compromise  decree.   Ibis  was, therefore, not  a  case  of election between two alternative units of assessment, but an attempt  to bring to tax the income of an assessable  entity which had escaped assessment.  The apart, under s. 3 of the Act,  in the matter of assessment, there is no question  of any election between a Hindu undivided 69 family and a member thereof in respect of the income of  the family.   If a Hindu undivided family exists under s.  3  of the  Act the Income-tax Officer has to assess it in  respect of its income.  Indeed, under s. 14(1) of the Act, any  part of the income received by its member cannot be assessed over again, While s. 3 confers an option on the Income-tax offcer to  assess either the association of persons or the  members of the association individually, no such option is conferred on  him thereunder in the case of a Hindu undivided  family, and its existence excluder. the liability of its members  in respect of the income of the former received by the  latter. [74 C-F] Commissioner  of Income-tax, U.P. v. Kanpur Coal  Syndicate, (1964) 53 I.T.R. 225: [1964] 8 S.C.R. 85 distinguished. If  the assessment proceedings initiated under s. 34 of  the Act  culminates  in the assessment of  the  Hindu  undivided family  appropriate  adjustments  have to  be  made  by  the Income-tax  Officer  in respect of the tax realised  by  the Revenue  in respect of the part of the income of the  family assessed on the individuals of the said family.  TO do so is not  to open the final orders of assessment, but in  reality to arrive at the correct figure of tax payable by the  Hindu undivided family. [75 C-D] Case law referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 638 of 1961. Appeal  by special leave from the judgment and  order  dated December  15,  1960  of the Allahabad  High  Court  (Lucknow Bench) at Lucknow in Writ Petition No. 86 of 1960. A.V.  Viswanatha  Sastri,  N. D. Karkhanis,  R.  H.  Dhebar, B.R.G.K. Achar and R. N. Sachthey, for the appellant. C.P.Lal, for the respondent. Mohan Behari Lal, for the        intervener. The Judgment of the Court was delivered by Subba Rao, J. This appeal by special leave arises out of the order of the High Court of Judicature at Allababad  quashing the notice issued by the appellant under S. 34 of the Indian Income-tax  Act,  1922, hereinafter called the Act,  to  the respondent as the karta of a Hindu undivided family for  the assessment year 1955-56. The facts may be briefly stated.  Up to the assessment  year 1952-53,  the respondent, Bachulal Kapoor, was  assessed  to

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income-tax as karta of the Hindu undivided family consisting of  himself, his wife and a minor son.  In a suit  filed  by the  wife  and  the son of Bachulal Kapoor  against  him,  a compromise  was effected between the parties and on  October 20,  1952, a compromise decree was passed.  On  January  18, 1954,  the  Incometax Officer, A-Ward,  Lucknow,  passed  an order accepting the 70 claim  under s. 25-A by the respondent that the  family  was partitioned.  For the assessment years 1953-54, 1954-55  and 1955-56,  the  members  of  the  family  were  assessed   as individuals.   On  March 24, 1960,  the  Income-tax  Officer issued a notice under S. 34 of the Act to the respondent  as the  karta  of the Hindu undivided family requiring  him  to file a return within the prescribed time of his world income on  the ground that the respondent’s income chargeable  to tax  for the assessment year 1955-56 had escaped  assessment and  also  was under-assessed.   Thereupon,  the  respondent moved  the  High Court at Allahabad under Art.  226  of  the Constitution  for quashing the said notice on  two  grounds, namely, (i)    the income in respect of which the return had been called for had already  been assessed in the  hands  of the individual members of     the family and, therefore, the said  income  could  not be assessed  undivided  family  had ceased  to  exist,  that the partition  of  the  family  was recognised  by the Income-tax Officer under s. 25-A  of  the Act, and, therefore, no valid notice could be issued to  the respondent  in  his  capacity  as the  karta  of  the  Hindu undivided  family.   On  an admission made  by  the  learned counsel for the Revenue, the notice, so far as it related to the  reassessment  of  the income on the  ground  of  under- assessment,  was  ignored as it was  inconsistent  with  the alternative  ground of escaped assessment.  The  High  Court held  that  the said notice was invalid as it  offended  the principle against double taxation.  As the assessment of the same  income in the hands of the members of the  family  for the  same year was not set aside, the High Court  held  that the same income could not be assessed again in the hands  of the Hindu undivided family by taking proceedings under s. 34 of  the  Act.   In that view, it thought  that  it  was  not necessary to go into the second ground, namely, whether  the proceedings  under S. 34 of the Act could have been  validly taken in view of the orders passed under s. 25-A of the Act. Pursuant  to the view expressed on the first  question,  the said notice was quashed.  Hence the appeal. The 4th respondent in Civil Appeals Nos. 805 and 806 of 1962 filed Civil Miscellaneous Petition No. 2655 of 1965  praying for  permission  to intervene in the present appeal  on  the ground  that a common question arose in the said appeals  as well as in the present appeal and it was ordered. Mr.  A.  V.  Viswanatha  Sastri,  learned  counsel  for  the Revenue,  contended  that under the Act  a  Hindu  undivided family and the individuals thereof were different assessable entities; that, as the 71 alleged compromise decree was a collusive one the said Hindu undivided  family continued to exist as a  separate  entity; that it had escaped assessment; and that, therefore, subject to the conditions laid down in s. 34 of the Act, the Income- tax  Officer  was  within  his  rights  to  issue  a  notice thereunder. The argument of Mr. C. P. Lal, learned counsel for the  res- pondent,  may  be  put thus :  the  Income-tax  Officer  had assessed the same income assessable for the year 1955-56  in the  hands of the individual members of the family  and  the

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assessments  made on them had become final.  Having  elected to assess the individuals as separate entities, the  Income- tax Officer had no jurisdiction under the Act to assess  the same  income in the hands of a separate  assessable  entity, namely, the Hindu undivided family.  He also relied upon the principle  of  avoidance  of  double  taxation  alleged   to underlie  the  scheme  of the Act in  respect  of  the  same income.. On  the question argued before us, the following  provisions of the Act will be relevant:               "Section 3. Where any Central Act enacts  that               income-tax  shall be charged for any  year  at               any  rate or rates, tax at that rate or  those               rates  shall  be  charged  for  that  year  in               accordance with, and subject to the provisions               of, this Act in respect of the total income of               the  previous year of every individual,  Hindu               undivided    family,   company,   and    local               authority,   and  of  every  firm  and   other               association of persons or the partners of  the               firm   or  the  members  of  the   association               individually.               Section 14. (1).  The tax shall not be payable               by an assessee in respect of any sum which  he               receives  as  a member of  a  Hindu  undivided               family where such sum has been paid out of the               income of the family.........               Section  2.  (9)  "person"  includes  a  Hindu               undivided family and a local authority.               Section 22. (1) The Income-tax Officer  shall,               on or before the 1st day of May in each  year,               give  notice, by publication in the press  and               by  publication  in  the  prescribed   manner,               requiring  every  person  whose  total  income               during the previous year exceeded the  maximum               amount  which is not chargeable to  income-tax               to furnish, within such period not being  less               than  sixty  days as may be specified  in  the               notice,  a return in the prescribed  form  and               verified in the prescribed manner,               72               setting   forth   (along   with   such   other               particulars as may be required by the, notice)               his total income and total world income during               that year.               Section 34. (1) If-               (a)   the  Income-tax  Officer has  reason  to               believe  that  by reason of  the  omission  or               failure  on the part of an assessee to make  a               return of his income under section 22 for  any               year  or  to  disclose  fully  and  truly  all               material  facts necessary for  his  assessment               for  that  year,  income,  profits  or   gains               chargeable   to   income-tax   have    escaped               assessment for that year, or have been  under-               assessed at too low a rate, or have been  made               the subject of excessive relief under the Act,               or  excessive loss or  depreciation  allowance               has  been computed................. he may  in               cases  falling  under clause (a) at  any  time               :.........  serve on the assessee, or, if  the               assessee  is  a  company,  on  the   principal               officer  thereof, a notice containing  all  or               any of the requirements which may be  included               in  a notice under sub-section (2) of  section

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             22 and may proceed to assess or reassess  such               income, profits or gains or recompute the loss               or depreciation allowance; and the  provisions               of  this  Act shall, so far as may  be,  apply               accordingly  as  if the notice were  a  notice               issued under that sub-section The  gist of the said provisions may be given thus: A  Hindu undivided family is a separate unit of assessment.  It is  a distinct  assessable  entity.  It is a "person"  within  its definition  in  the  Act.  It is liable to  be  assessed  to income-tax in respect of its income.  A member of that Hindu undivided family is not liable to pay any tax in respect  of any sum which he receives as a member of that family out  of the  income  of that family.  If the  said  Hindu  undivided family  has escaped assessment for any year, the  Income-tax Officer, subject to the conditions laid down in s. 34(1)  of the Act, may issue a notice thereunder calling upon the said Hindu undivided family to submit a return of its income  for that year and proceed to assess it in terms thereof.  It  is manifest from a combined reading of the said provisions that the  Income-tax  Officer  can  issue a  notice  to  a  Hindu undivided family under s.     34  of the Act on  the  ground that it has escaped assessment. The impugned notice under  s. 34(1) of the Act issued to the respondent reads thus 73               "Whereas  I have reason to believe  that  your               income   assessable  to  income-tax  for   the               assessment year 19.55-56 has               (a)   escaped assessment,               (b)   been under-assessed,               1,  therefore,  propose to reassess  the  said               income that has               (a)   escaped  assessment,  (b)  been   under-               assessed.               I  hereby  require you to deliver  to  me  not               later than30th March, 1960, or within 35  days               of the receipt of this notice, a return in the               attached  form of your total income and  total               world  income  assessable for  the  said  year               ending 31st March 1956." In the counter-affidavit filed by the Income-tax Officer  in the High Court it was stated that he had reason to  believe, in  consequence  of  information  in  his  possession,  that income,  profits  or  gains  chargeable  to  income-tax  had escaped    assessment.     His    information    was    that notwithstanding  the  compromise decree the members  of  the family were living together, had joint mess and the business was  run  by  the respondent.  In short,  the  case  of  the Revenue  was that the compromise was a make-believe one  and the family in fact continued to be a joint Hindu family.  If the case of the Revenue was true-on which we do not  express any  opinion  and the fact of the continuance of  the  joint Hindu family was kept back from the knowledge of the Income- tax  Officer,  it would be a clear case of the  said  family escaping  assessment during the relevant year.  If  that  be so,  s. 34(1) would immediately be attracted and the  notice issued would be good.  But, it was contended that under s. 3 of the Act, the Income-tax Officer had the option to  assess either  the  Hindu undivided family or the  members  thereof separately and that, as the said Officer, in exercise of the option,  had assessed the individual members of the  family, he  had  no  longer any jurisdiction  to  assess  the  Hindu undivided  family.  In support of that  contention  reliance was  placed on a decision of this Court in  Commissioner  of

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Income-tax,  U.P.  v. Kanpur  Coal  Syndicate(1).   Therein, construing s. 3 of the Act, this Court observed               "The  section expressly treats an  association               of  persons and the individual members  of  an               association  as  two  distinct  and  different               assessable  entities.   On the  terms  of  the               section the tax can be levied on either of               (1)   (1964)  53  I.T.R. 225,  228:r  1964]  8               S.C.R. 85.                p. Cl/66-7               74               the   said  two  entities  according  to   the               provisions of the Act.  There is no scope  for               the   argument  that  under  section   3   the               assessment shall be only on the association of               persons as a unit though after such assessment               the  share of the income of a member  of  that               association  may be added to the other  income               under   section  14(2)  of  the   Act.    This               construction would make the last words of  the               section  viz-., "members of  the,  association               individually", a surplusage." But,  these observations in the context of the present  case have  no bearing.  The exercise of the option to do  one  or other  of  the two alternatives open to an  Officer  assumes knowledge on his part of the existance of two  alternatives. If  the case of the Revenue be true, the Income-tax  Officer at the time he assessed the individual members or-the family had  no  knowledge that a united joint  family  existed;  he presumably  proceeded on the basis that the said family  had really  ceased to exist under the terms of  the,  compromise decree.  This is, therefore, not a case of election  between two alternative units of assessment, but an attempt to bring to tax the income of an assessable entity which had  escaped assessment.   That  apart,  under s. 3 of the  Act,  in  the matter  of assessment, there is no question of any  election between  a  Hindu undivided family and a member  thereof  in respect  of the income of the family.  If a Hindu  undivided family exists, under s. 3 of the Act the Income-tax  Officer has  to assess it in respect of its income.  Indeed,  tinder s. 14(1) of the Act, any part of the income received by  its members  cannot be assessed over again.  While s. 3  confers an  option  on the Income-tax Officer to assess  either  the association  of  persons or the members of  the  association individually, no such option is conferred on him  thereunder in  the case of a Hindu undivided family, as  its  existence excludes  the  liability of its members in  respect  of  the income of the former received by the latter. It  was  then forcibly brought to our notice that  the  said view  would  be  subversive  of  the  doctrine  of   "double taxation".  It was said that as the orders of assessment  on the individual members of the said family had become  final, if the Income-tax Officer was permitted to assess the  Hindu undivided family for the same assessment year, tax would  be imposed on the same income twice over.  It is true that  the Act does not envisage taxation of the same income twice over "on one passage of money in the form of one sort of income". It is equally true that s. 14(1) of the Act expressly debars the imposition of tax on any part of 75 the  income  of  a Hindu undivided family  received  by  its members.   The  fact that there is no provision in  the  Act dealing  with  a  converse  position  does  not  affect  the question,  for the existence of such a converse position  is legally  impossible  under the Act.  So long  as  the  Hindu

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undivided  family  exists, the  individuals  thereof  cannot separately   be   assessed  in  respect   of   its   income. Nonetheless,  if,  under  some  mistake,  such  income   was assessed  to  tax in the hands of  the  individual  members, which  should not have been done, when a  proper  assessment was  made on the Hindu undivided family in respect  of  that income,  the  Revenue had to make  appropriate  adjustments; otherwise, the assessment made in respect of that income  on the  Hindu  undivided  family  would  be  contrary  to   the provisions  of  the Act, particularly s. 14(1) of  the  Act. We,  therefore,  bold  that if  the  assessment  proceedings initiated  under  s.  34  of  the  Act  culminates  in   the assessment  of  the  Hindu  undivided  family,   appropriate adjustments  have  to be made by the Income-tax  Officer  in respect  of  the tax realised by the Revenue in  respect  of that  part  of  the income of the  family  assessed  on  the individuals  of the said family.  To do so is not to  reopen the final orders of assessment, but in reality to arrive  at the  correct  figure of tax payable by the  Hindu  undivided family. The decisions, except one, cited at the Bar do not speak  in a:  different  voice  : they are consistent  with  the  view expressed by us. The  Lahore High Court in Jaikishan Das v.  Commissioner  of Income-tax, Lahore(1) ruled that the provisions of s. 34  of the Income-tax Act could not be rendered inapplicable merely because,  income which was alleged to have escaped from  the assessment of a particular person was included in the income of another person.  The Allahabad High Court in Joti  Prasad Agarwal v. Income-tax Officer, B Ward, Mathura(2) held  that once the income of an association of members was charged  to income-tax  in  the hands, of the members  individually  and assessments of the members remained valid assessments, there could  be no fresh assessment of the income in the hands  of the  association.   That  conclusion was  arrived  at  on  a construction  of  s. 3 of the Act.  Therein,  Bhargava,  J., speaking for the Court, observed:               assessed  and charged to tax in the  hands  of               the  members of the  association  individually               under  one of the alternatives provided  under               section      3     of      the      Income-tax               Act.....................               (1) (1951) 20 I.T.R. 540               (2) (1959) 371T.C.R. 107, 111,               76               Section  3  of  the Act,  which  is  the  main               charging  section, only talks of charging  the               income of certain persons and does not talk of               income-tax  being  charged on  persons.   This               implies that the charge is to be levied on  an               income only once.  Whether it is to be charged               in  the  hands of one person  or  another  can               certainly  be determined under section  3  and               other  relevant  provisions of  the  Incometax               Act.   Section 3 is clear enough to  indicate,               that   the  same  income  cannot  be   charged               repeatedly in the hands of different  persons               or in the hands of the same person." In  that  case there was no question of suppression  of  the fact of the existence of an association of persons when  the members were individually assessed.  The decision  proceeded mainly on the basis of the exercise of the option  conferred on the Incometax Officer under s. 3 of the Act to assess  an association of members or the members individually and  that if  once  the  option  was exercised  and  the  income  was

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assessed  in the hands of the members, it was held  that  in regard  to the same income the association of members  could not  be  assessed.   Where  the  Income-tax  Officer   first assessed  a  partnership firm but later on issued  a  notice under s. 34 of the Act for assessing the alleged partners of the  firm  as constituting an association  of  persons,  the Allahabad High Court in Moti Chandra v. Income-tax Officer,- District  III(ii),  Kanpur(1),  held  that  the   Income-tax Officer  had jurisdiction to do so.  Therein,  Upadhya,  J., adverting to Joti Prasad Agarwal’s case(2) said :               "The  decision is wholly inapplicable  to  the               case  in hand.  Here the assessment was  never               made  either on members of the association  or               on  the association itself.  It had been  made               on  certain  persons  who claimed  to  be  the               partners  of the firm Messrs.  Rup Narain  Ram               Chandra.  The Income-tax Officer now wants  to               assess  the association of persons  which  was               not  assessed tax at all.  Even the income  of               the  members of the association had  not  been               subjected  to tax in their hands.   Section  3               therefore provides no bar to such assessment."               This  is  a  case  of  an  assessable  entity,               namely,  as association of  persons,  escaping               assessment,   though  the  same   income   was               assessed in the hands of the firm. (1)  A.I.R.  1962 Allahabad 291, at 298      (2)  (1959)  37 I.T.R. 107, 111 77 In  S.  Gyani Ram and Co. v. Income-tax  Officer,  A.  Ward, Firozabad(1), when the Income-tax Officer assessed a  person to tax on a certain income and later on for the same  income proposed  to  take  action under s. 34 of  the  Act  against another  person, the Allahabad High Court held  that  action under  a.  34 of the Act could be initiated against  him  in respect  of the same income previously taxed on  the  ground that it had escaped assessment in his hands. These cases, except Joti Prasad Agarwal’s case(1) accept the principle  that the Income-tax Officer has  jurisdiction  to initiate,  proceedings  under  s.  34 of  the  Act,  if  the conditions  laid down therein are complied with,  against  a person  on  the ground that the income, though it  has  been assessed in the hands of another, has escaped assessment  in his  hands.  They do not deal with the  connected  question, how  the  adjustments will have to be made to  avoid  double taxation of the same income.  The only question that  arises at  the  time  the  Income-tax  Officer  proposes  to   take proceedings  under s. 34 of the Act is, whether  the  income has  escaped  assessment or has been under-assessed  in  the hands  of the person against whom the said  proceedings  are ’initiated.   At that stage, the question of  resolving  the conflict  between  the proposed assessment  and  an  earlier assessment made on a wrong person does not arise. Some  argument was advanced on the question of the  validity of what are called "protective or precautional assessments". Reference  was  made to Jagannath Hanumanbux  v.  Income-tax Officer(3)  and  to  the decision of  this  Court  in  Lalji Haridas  v.  Income-tax  Officer(,’).  In  the  former,  the validity  of protective assessment was approved; and in  the latter,  this Court, though the question of  assessment  was raised,  did  not express its final opinion  thereon.   This Court  held that when there was a doubt as to  which  person among  two was liable to be assessed,  parallel  proceedings might  be  started against both; and it also  laid  down  an equitable  procedure to be followed in that  situation.   In

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this  case, the question of protective assessment  does  not call  for  our decision and we do not  express  our  opinion thereon. We,  therefore,  hold  that the High  Court  went  wrong  in holding  that the Income-tax Officer had no jurisdiction  to initiate  proceedings  under s. 34 of the  Act  against  the respondent as the karta of a Hindu undivided family. (1) (1963) 47 I.T.R. 472     (2) (1959) 37 I.T.R. 107 (3) (1957) 31 I.T.R. 603     (4) (1961) 43 I.T.R. 387 78 The  High  Court,  as we have  indicated  earlier,  has  not expressed its opinion on the question based upon S. 25-A ’of the Act.  In the result, the, order of the High Court is set aside  and  the  appeal is remanded to the  High  Court  for disposal  in accordance with law.  The costs of this  appeal will abide the result. Appeal remanded. 79