http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: INCOME-TAX OFFICER, GORAKHPUR

       Vs.

RESPONDENT: RAM PRASAD AND ORS.

DATE OF JUDGMENT28/08/1972

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. REDDY, P. JAGANMOHAN KHANNA, HANS RAJ

CITATION:  1974 AIR  454            1973 SCR  (1)1043

ACT: Indian  Income-tax Act 1922-S. 14 and 44-The Excess  Profits Tax  Act 1940-S. 13(1)-Whether a H.U.F. can be assessed  for the purpose of excess profits tax even after petition.

HEADNOTE: Respondent  1, the Karta, carried on the family business  in the name and style of "Ram Nath Ram Prasad".  The Income-Tax assessments  for the assessment year 1944-45 and  the  exces profits  tax  assessment for  the  corresponding  chargeable accounting period ending on October 28, 1943 were act  aside by the income-Tax Appellate Tribunal with the direction that fresh  orders of assessment be made in accordance  with  the directions given by the Tribunal. On  September  25,  1951,  under  a  scheme  for   voluntary disclosure,  the  Am  respondent disclosed by  means  of  an application,  a sum of Rs. 2,08,450/- and offered  the  same for taxation. On October 1, 1951, the Hindu undivided family was disrupted and  there  was  a complete  partition.   Thereafter,  fresh assessments  to  Income Tax were made  for  the,  assessment years  1944-45  to  1947-48 taking  into  consideration  the disclosure  made by the 1st respondent.  Subsequently,  were issued  under s. 13(1) of the Excess Profits Tax  Act,  1940 for certain chargeable accounting periods in the name of the first  Respondent.   He Wed writ petitions  challenging  the validity of the notices issued. The learned single Judge allowed the petitions holding  that the  appellant was not competent to take  proceedings  under the  Act  in respect of a Hindu undivided family  which  had been divided.  On appeal, the Division Bench also upheld the decision  of  the  learned  single  Judge.   The   appellant contended  that (1) in the case of Excess Profits  Tax  Act, the tax is levied on the business and not on any  individual and  therefore, what is relevant is the continuation of  the business  and  not  the continuity of the  identity  of  the assessee; (2) that under Section 44 of the Indian Income Tax Act  1922, a firm, or association of person, is jointly  and severally  liable  to assessment and for the amount  of  tax payable. Dismissing the appeals, (1)  Under  s. 14 sub-section (3) of the Excess Profits  Tax

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

Act, if a business is carried on jointly during a chargeable accounting  period, the assessment should be made  upon  the persons jointly and in the case of a partnership, it  should be  in the name of the partnership.  Under Sub-section  (4), if a person could be assessed either solely or jointly  with other  person  or  persons,  in  case  of  his  death,   the assessment  may be. made on his legal representative  either solely,  or jointly with the other person or  persons.   The provisions of Section 14 place the matter beyond doubt  that the  assessment  of  the tax is on the person  in  the  same manner  as  under the Income-tax Act.  No doubt,  under  the Income-tax  Act, the computation of tax is on the  basis  of the  income derived by a person from various sources,  while under the Excess Profits Tax Act, it is on the profits of "a business  of  the  person".  Therefore, the  change  of  the person  who carries on business is very material so  far  as the Excess Profits Tax is concerned. [1048D] 1044 Commissioner of Excess Profits Tax, Madras v. Jivaraj  Topun and Sons, Madras, 20 I.T.R. 143, referred to. (ii) Section  44 of the Indian Income Tax Act 1922,  applies only to firms and associations of persons.  Hindu  undivided family is neither a firm, nor an association of persons.  It is a separate entity by itself.  That is made clear by s.  3 of the Indian Income Tax Act 1922.  Therefore, s. 44 of  the Act  has no application to the ’facts and  circumstances  of the case and the impugned notices are invalid. [1049E]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : C.A. Nos. 257  and  258  of 1969. Appeals  by special leave from the judgment and order  dated July 11, 1967 of the Allahabad High Court in Special  Appeal Nos. 319 and 320 of 1962. B.   Sen, P. L. Juneja, R. N. Sachthey and S. P. Nayar,  for the appellant. N. D. Karkhanis, and A. G. Ratnaparkhi, for the respondents. The Judgment of the Court was delivered by Hegde,  J. Aggrieved by the decision of the  Allahabad  High Court  in Misc.  Writ Petitions Nos. 1057 and 1059 of  1957, the Income-tax Officer, Gorakhpur has brought these  appeals after  obtaining special leave from this Court.  For  proper appreciation of the questions of law arising for decision in these  appeals,,  it is necessary to set  out  the  material facts. The  first  respondent Ram Prasad was the Karta of  a  Hindu undivided  family which carried on business in the name  and style  of "Ram Nath Ram Prasad".  Assessments were  made  on the  family for income-tax for the assessment years  1944-45 to 1947-48 and for excess profits tax for the corresponding chargeable accounting periods respectively ending on October 28,  1943, October 16, 1944, November 4, 1945 and  March  31 1946.   The income-tax assessments for the  assessment  year 1944-45  and  the  excess profits  tax  assessment  for  the corresponding chargeable accounting period ending on October 28, 1943 were set aside by the Income-tax Appellate Tribunal with  the direction that fresh orders of assessment be  made in accordance with the directions given by the Tribunal.  On September 25, 1951, under a scheme for voluntary disclosure, the first respondent disclosed by means of an application  a sum  of Rs. 2,08,450 and offered the same for taxation.   On October  1, 1951, the Hindu undivided family  disrupted  and there  was a complete partition, which was accepted  by  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

department as of that date.  Thereafter fresh assessments to income-tax  were  made for the assessment years  1944-45  to 1947-48 taking into consideration 1045 the  disclosures made by the first respondent.  There is  no dispute about those assessments.  Subsequently notices  were issued  under s. 13(1) of the Excess Profits Tax  Act,  1940 (to  be hereinafter referred to as the Act) on February  14, 1957  for all the four chargeable accounting periods  ending on October 25, 1943, October 16, 1944, November 4, 1945  and March  31,  1946  in  the  name  of  the  first  respondent. Immediately  thereafter the first respondent filed two  writ petitions  before the Allahabad High Court  challenging  the validity  of the notices issued.  After the  institution  of those writ petitions on April 8, 1958, the appellant  issued three  notices to the respondent under s. 1,5 of the Act  in respect  of  the  chargeable accounting  periods  ending  on October  14,  1944,  November 4, 1945 and  March  31,  1946. Thereafter the writ petitions filed ’by the first respondent were  amended  and the validity of those  notices  was  also challenged.   The  learned single judge who heard  the  writ petitions  allowed the same holding that the  appellant  was not  competent to take proceedings under the  provisions  of the Act in respect of Hindu undivided family which had  been divided.  Aggrieved by that decision, the appellant took  up the matter in appeal to the Division Bench of the  Allahabad High  Court.  The Division Bench upheld the decision of  the learned single judge.  Hence these appeals. Section  2(17)  of the Act defines a person as  including  a Hindu undivided family.  Section 4 is the charging  section. It reads :               "4(1)  Subject to the provisions of this  Act,               there  shall,  in respect of any  business  to               which this Act applies, be charged, levied and               paid on the amount by which the profits during               any  chargeable accounting period  exceed  the               standard  profits a tax (in this Act  referred               to  as "excess profits tax") which  shall,  in               respect  of any chargeable  accounting  period               ending  on  or before the 31st day  of  March,               1941,  be  equal  to fifty per  cent  of  that               excess and shall, in respect of any chargeable               accounting  period beginning after that  date,               be equal to such percentage of that excess  as               may  be  fixed  by  the  annual  Finance   Act               :............               The  other relevant provisions are ss. 13  and               14 which read               "  13 (1) The Excess Profits Tax Officer  may,               for  the  purpose  of this  Act,  require  any               person  whom he believes to be engaged in  any               business to which this Act applies, or to have               been   so   engaged  during   any   chargeable               accounting  period, or to be otherwise  liable               to  pay excess profits tax to  furnish  within               such  period, not being less than  sixty  days               from the date of the               1046               notice,  as may be specified in the notice,  a               return in the prescribed form and verified  in               the  prescribed manner setting  forth  (,along               with such other particulars as may be provided               for  in  the  notice)  with  respect  to   any               chargeable accounting period specified in  the               notice  the  profits of the business  and  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

             standard  profits of the business as  computed               in accordance with the provisions of section 6               or  the  amount of  deficiency  available  for               relief under section 7 :               Provided  that the Excess Profits Tax  Officer               may,  in his discretion, extend the  date  for               the delivery of the return.               (2)   The Excess Profits Tax Officer may serve               on  any  person upon whom a  notice  has  been               served   under   sub-section  (1)   a   notice               requiring   him  on  a  date  to  be   therein               specified  to produce, cause to  be  produced,               such  accounts  or  document  as  the   Excess               Profits  Tax Officer may require and may  from               time  to  time servo further notices  in  like               manner   requiring  the  production  of   such               further  accounts or documents or other  evid-               ence as he may require:               Provided  that the Excess Profits Tax  Officer               shall  not  require  the  production  of   any               accounts  relating  to a period prior  to  the               "previous year" as determined under section  2               of  the Indian Income-tax Act, 1922,  for  the               purpose  of the income-tax assessment for  the               year ending on the 31st day of March, 1937.               14(1) The Excess Profits Tax Officer shall, by               an  order  in writing after  considering  such               evidence,  if  any, as he has  required  under               section 13, assess to the best of his judgment               the  profits liable to excess profits tax  and               the  amount of excess profits tax  payable  on               the basis of such assessment, or if there is a               deficiency  of  profits, the  amount  of  that               deficiency  and the amount of  excess  profits               tax,  if  any, repayable and shall  furnish  a               copy  of such order to the person on whom  the               assessment has been made.               (2)   Excess profits tax payable in respect of               any  chargeable  accounting  period  shall  be               payable by the person carrying on the business               in that period.               (3)   Where two or more persons were  carrying               on  the  business jointly  in  the  chargeable               accounting  period,  the assessment  shall  be               made  upon them jointly and, in the case of  a               partnership, may be made in the               1047               chargeable  accounting period, the  assessment               shall  be made upon them jointly and,  in  the               case of a partnership name.               (4)   Where   by  virtue  of   the   foregoing               provisions.  an assessment could, but for  his               death,  have  been made on any  person  either               solely  or  jointly with any other  person  or               persons,  the  assessment may be made  on  his               legal representative either solely or  jointly               with  that  other person or persons, as  the               case may be." Section 21 of the Act attracts some of the provisions of the Indian  Income-4ax Act, 1922 to proceedings under  the  Act. That section reads :               "The  provisions of sections 4A, 4B,  10,  13,               24B,  29,  36  to 44C  (inclusive)  45  to  48               (inclusive)  49E,  49F,  50,  54,  61  to   63               (inclusive)  65  to  67A  (inclusive)  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

             Indian  Income-tax Act, 1922 shall apply  with               such  modifications, if any, as may  be  pres-               cribed  as  if the said provisions  were  pro-               visions  of  this Act and referred  to  excess               profits  tax  instead of  to  income-tax,  and               every officer exercising powers under the said               provisions in regard to incometax may exercise               the  like powers under this Act in  regard  to               excess   profits  tax  in  respect  of   cases               assigned  to  him  under  sub-section  (3)  of               section  3  as  he exercises  in  relation  to               income-tax under the said Act :               Provided   that   references   in   the   said               provision,% to the assessee shall be construed               as  references to a person to  whose  business               this Act applies."               There is no provision in the Act similar to s.               25-A of the Indian Income-tax Act, 1922. The learned Counsel for the appellant contended that in  the case  of  Excess  Profits  Tax, the tax  is  levied  on  the business  and  not on any individual and therefore  what  is relevant  is  the continuation of the business and  not  the continuity  of the identity of the assessee.   According  to him  if  the business in question continues as in  the  case before us, then the fact that the identity of the person who is continuing the business has changed is not relevant.   In support of this contention he relied on the language of s. 4 of  the  Act.  It will be noticed that the proviso  to  that section refers to s. 4(3) of the Indian Income-tax Act, 1922 and the body of the section itself refers to the assessments in  respect of any business to which the Act applies, to  be charged, levied and paid on the amount by which the  profits during any 1048 chargeable  accounting period exceeds the standard  profits. The word "paid" in the context can only refer to the person. That  is  a  clear  indication  that  the  Act  contemplates assessment of the tax on a person though on the basis of the profits  from a business.  This conclusion receives  support from s. 5 of the, Act which states that the Act is to  apply to  every  business of which any part of  the  profits  made during  the  chargeable accounting period is  chargeable  to income-tax under the provisions of sub-cl. (1), sub-cl.  (2) of  cl. (b) of sub-s. (1) of S. 4 of the  Indian  Income-tax Act,  1922 or of cl. (c) of that sub-section.  No doubt  the basis  of the assessment is not the receipt of  the  profits but  the accrual, whether it accrued to a resident  or  non- resident  and  whether  the accrual was  within  or  without British India in the same manner as under the Indian Income- tax  Act, 1922.  As observed by the High Court of Madras  in Commissioner of Excess Profits Tax.  Madras v.   Jivraj Topun and Sons, Madras:               "The point however is put beyond doubt by Sec-               tion  14,  sub-section (1) of  the  Act  which               provides  for assessment of the tax after  the               return  is submitted in pursuance of a  notice               issued  under  Section  13  of  the  Act.   It               requires that the Excess Profits Tax  Officer,               after completing the assessment should furnish               "a copy of such order (that is the  assessment               order)  to the person on whom  the  assessment               has  been  made",  Sub-section  (2)  of   that               section  imposes the liability to pay  on               the  person carrying on the business  in  that               period.  Under sub-section (3) if the business

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

             is  carried on jointly during  the  chargeable               accounting  period, the ,assessment should  be               made upon the persons jointly and in the  case               of a partnership it should be, in the name  of               partnership.  Under Subsection (4) if a person               could  be  assessed either solely  or  jointly               with  other person or persons, in case of  his               death, the assessment may be made on his legal               representative either solely, or jointly  with               the  other person or persons.  The  provisions               of  this  section therefore place  the  matter               beyond doubt that the assessment of the tax is               on the person in the same manner as under  the               income-tax Act.  No doubt under the Income-tax               Act the computation of the tax is on the basis               of the income derived by a person from various               sources,  while under the Excess  Profits  Tax               Act it is on the profits of a business of  the               person."               (1)   20 I.T.R. 143.               1049 We  are in agreement with these observations.   Consequently we  are unable to uphold the contention that so long as  the business continues, the change of the person who carries  on the business is immaterial. Next Mr. B. Sen, learned Counsel for the appellant sought to seek  assistance  from s. 44 of the Indian  Income-tax  Act, 1922 which section is one of the sections mentioned in s. 21 of  the Act.  Section 44 of the Indian Income-tax Act,  1922 reads thus               "Where  any business, profession  or  vocation               carried on by a firm or association of persons               has been discontinued, or where an association               of persons is dissolved, every person who  was               at   the  time  of  such   discontinuance   or               dissolution a partner of such firm or a member               of  such association shall, in respect of  the               income,  profits  and  gains of  the  firm  or               association,  be jointly and severally  liable               to  assessment  under Chapter IV and  for  the               amount  of tax payable and ill the  provisions               of  Chapter IV shall, so far as may be,  apply               to any such assessment." This  provision  applies only to firms  and  association  of persons.   Hindu undivided family is neither a firm  nor  an association of persons.  It is a separate entity by  itself. That  is  made clear by s. 3 of the Indian  Income-tax  Act, 1922   which  classifies  the  assessees  under  the   heads "individuals",  "Hindu  undivided  families",   "companies", "local  authorities",  "firms" and  "other  associations  of persons" If Hindu undivided family is to be considered as an association  of  persons,  there  was  no  point  in  making separate  provision  for the assessment of  Hindu  undivided families.  This conclusion is strengthened by S. 25-A of the Indian   Income-tax  Act,  1922  which  provides   for   the assessment of Hindu undivided family after its partition. For  whatever reason it may be, the legislature did not  in- clude  in s. 21 of the Act s. 25-A of the Indian  Income-tax Act,  1922 nor did it make any simiar provision in the  Act. That  being  so,  we  agree with the  High  Court  that  the impugned  notices were invalid.  The same view was taken  by the Madras High Court in Jivraj Topun’s case (supra) and the Allahabad High Court in Commissioner of Income-tax, U.P.  v. Neekelal Jainarain (1). For the reasons mentioned above, these appeals fail and they

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

are dismissed with costs-advocates’ fee one set. S.C.                 Appeals dismissed. (1)6 I.T.R. 704. 1050