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PETITIONER: M/S. GAURI SHANKAR, CHANDRABHAN

       Vs.

RESPONDENT: C.I.T., U.P., LUCKNOW

DATE OF JUDGMENT03/05/1976

BENCH: SINGH, JASWANT BENCH: SINGH, JASWANT GUPTA, A.C.

CITATION:  1976 AIR 1678            1976 SCR  505  1976 SCC  (2) 973

ACT:      Assessment  jurisdiction   of  Income   Tax   Officers- Jurisdiction to  continue to  assess as  undivided,  despite partition under  personal law,  a  Hindu  family  which  has hitherto been  assessed in  that  status-Interpretation  and scope of  5. 25A(3)  read with  s. 25A(1)  of the Income Tax Act-Penalty  imposed  under  s.  28(1)(c)  of  the  Act  for concealment of income by the Hindu Undivided Family prior to the actual  date of  recording of  an  order  accepting  the disruption of the Hindu Undivided Family is proper.

HEADNOTE:      In response  to a  show cause  notice dated  March  15, 1957, under  s. 28(1)(c)  of  the  Income  Tax  Act,  before imposing a penalty for deliberate concealment of its income, the  appellant,   through  its   authorised  representative, voluntarily agreed  to a  slum of Rs. 15,000/- being treated as income of Hindu Undivided Family. The Income Tax officer, by his  order dated  March  20,1958,  added  a  sum  of  Rs. 68,550/- to  the income of the appellant and imposed on it a penalty of  Rs. 26,000/-  which on appeal was reduced to Rs. 15,000/-. Meanwhile,  on March 19, 1957, the appellant filed an application  under  s.  25A  of  the  Act  for  an  order recording partition  of joint  family property  in  definite portions from  June 22,  1956, claiming  that date to be the date  of  partition.  The  Income  Tax  officer,  after  due enquiries, accepted  the disruption  of the  Hindu Undivided Family as  claimed by  his order  dated March 26, 1962. This led the  appellant to  contend that,  in view of’ the orders dated March  26,  1962,  of  the  Income  Tax  officer,  the imposition of  the penalty  by him on March 20, 1958 was bad in law  and could  not be sustained. The Tribunal uphold the contentions of  the appellant resulting in a reference under s. 66(1)  of the Act to the High Court of Allahabad (Lucknow Bench),  which   reversed  the  decision  or  the  Tribunal. However, the High Court granted a certificate of fitness for appeal to this Court.      Dismissing the appeals the Court, ^      HELD: Sub-section  (3) of  s. 25A of the Income Tax Act embodies a  legal fiction  according to which a Hindu family which has  been previously  assessed as "undivided" is to be

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continued to  be treated  as "undivided" till the passing of the order  under sub-s.  (1) of  s. 25A. So long as no order under s. 25(A)(1) 1 of the Act is recorded, the jurisdiction of the Income Tax officer to continue to assess as undivided despite a partition under personal law, a Hindu family which has  hitherto   been  assessed   in  that   status,   remain unaffected. [508G-H]      Additional Income Tax Officer, Quddapah v. A. Thimmayya JUDGMENT: v. Commissioner  of Income Tax, Gujrat (1967) 63 I.T.R. 416, applied.      Commissioner of  Income Tax  v. Sanchar  Sah  Bhim  Sah (1957) 27  I.T.R.  307.  S.  A.  Raju  Chattiar  &  Ors.  v. Collector of  Madras &  Anr. (1956) 29 I.T.R. 241; Mahankali Subba Rao  Mahankali Nageswara Rao & Anr. v, Commissioner of income Tax.  Hyderabad (1957) 31 I.T.R. 867 and Commissioner of Income  Tax, Punjab  v. Mothu  Ram Prem  Chand (1967)  66 I.T.R. 638, not applicable      HELD FURTHER:  In the  instant case,  there was  not  a whisper of  the application  under s.  25A (1) of the Act by the  appellant   on  March   15,  1957,   when  the  penalty proceedings were  initiated against  it. Even  on March  20, 1958. when the penalty was imposed, there was no order under s. 25A(l) of the Act lt was only on March 26, 1962, that the partition was recognised and order 506 under S.  27A(1) of  the Act was passed. There was, thus, no bar to the imposition or the impugned penalty. [509E-F]

&      CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 886 of 1971.      (From the judgment and order dated the 18.9.1969 of the Allahabad High  Court in  I. T.  R. Misc.  Case No.  836  of 1963.)      G. C.  Sharma, V.  N. Ganpule,  D. K. Jain, Anup Sharma and P. C. Kapur, for the appellant.      B. Sen and 5. P. Nayar, for the respondent      The Judgment of the Court was delivered by      JASWANT SINGH,  J. This  is an appeal by certificate of fitness granted by the High Court of Judicature at Allahabad under section  66 A(2)  of the  Indian Income-tax  Act, 1922 (hereinafter referred  to as  ’the Act’)  from its  judgment dated September  18, 1969  in I.T.R.  Misc. Case  No. 836 of 1963.      The  facts   giving  rise   to  this  appeal  are:  The appellant, a  Hindu  undivided  family  consisted  of  Gauri Shankar, the  father, and  his three  sons viz. Chandrabhan, Bengali Lal and Brij Kishan. Gauri Shankar, the karta of the family who  was incharge of the affairs of the family during the relevant  year which  extended from  April 13,  1945  to April 12,  1946, the  assessment year being 1946-47, died on April 2,  1946. He  was succeeded by his son, Chandrabhan as Karta of  the  family.  The  appellant  had,  in  the  first instance, filed  a return showing an income of Rs. 9,701 j-. On scrutiny of the relevant material, the Income Tax Officer found a  number of  discrepencies in  the  accounts  of  the appellant and  also noted  the existence  of cash credits to the appellant’s  account in  the books  of another firm viz. M/s. Tilyani  Glass Works  and a certain sum deposited in an account styled  as Abdul  Wahid Khan  & Sons.  He  thereupon issued a  notice dated  March 15,  1957,  calling  upon  the appellant to  explain the  discrepencies in  the accounts as

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also in  the cash  credits and  to show  cause why a penalty under section 28(1)(c) of the Act be not imposed upon it. In response to  the notice,  a representative  of the appellant appeared before  the  Income  Tax  officer  and  voluntarily agreed to a sum of Rs. 15,000/- being treated as its income. After hearing  the Appellant’s representative the Income Tax Officer felt  satisfied that  the appellant had deliberately concealed its  income and  furnished an  inaccurate  return. Accordingly, by  his order  dated March 20, 1958, he added a sum of  Rs. 68,550/-  to the  income of  the  appellant  and imposed on it a penalty of Rs. 26,000/-. Meanwhile, on March 19, 1957,  an application  under section 25-A of the Act was made to  the Income  Tax  officer  for  an  order  recording partition of  joint family  property in  definite  portions, which according  to the  application had taken place amongst the members  of the Hindu undivided family on June 22, 1956. The Income  Tax Officer  on  being  satisfied  after  making enquiries that  a complete  partition of  the  joint  family property has  taken place,  recorded an  order under section 25A (1)  of  the  Act  on  March  26,  1962,  accepting  the partition with effect 507 from June  22, 1956,  as claimed. Against the penalty of Rs. 26,000/ imposed  the Income  Tax Officer  by his order dated March 20,  1958, the  appellant preferred  an appeal  to the Appellate Assistant Commissioner, who reduced the Penalty to Rs.  15,000/-.   Not  satisfied  with  THIS  reduction,  the appellant went  up in  further  appeal  to  the  Income  tax appellate  Tribunal   and  raised  before  it  a  number  of contentions Amongst  other things,  it was  urged before the Tribunal that since the Hindu undivided family had disrupted on June  22, 1956,  as accepted by the Income Tax officer in his aforesaid  order  date  March  26,  1962,  passed  under section 25-A(l) cf the Act, the imposition of the penalty by the  Income  Tax  officer  on  March  20,  1958,  after  the disruption of  the family  was bad  in law  and could not be sustained. While  rejecting the  other contentions raised on behalf of the appellant, the Tribunal upheld this contention by its order dated March 6, 1963. Thereupon the Commissioner of Income-tax,  U.P. made  application before the Income-tax Appellate Tribunal under section 66(1) of the Act requesting that the following question of law arising from its decision be referred to the High Court:-           "Whether in  the facts  and circumstances  of  the      case the  imposition of  penalty under section 28 ( 1 )      (c)  on   the  Hindu  Undivided  family  after  it  had      disrupted within  the meaning of section 25-A is bad in      law".      Acceding to  the request  of the Commissioner of Income Tax, the  Tribunal referred  the above mentioned question to the High  Court which  answered the same in the negative The appellant thereupon  applied to  the High Court and obtained the aforesaid  certificate of  fitness for  appeal  to  this Court. This is the matter is before us. E      Relying on  Commissioner of  Income Tax v. Sanichar Sah Bhim Sah(1),  S. A.  Raju Chattiar  & Ors.  v. Collector  of Madras &  Anr.(2) Mahankali  Subha Rao,  Mahankali Nageswara Rao &  Anr. v.  Commissioner of  Income Tax Hyderabad(3) and Commissioner of Income tax Punjab v. Mothu Ram Prem Chand(4) counsel for  the appellant  has reiterated  before  us  that since the  Hindu undivided  family had dissolved on June 22, 1956 as  accepted by  the Income  Tax officer vide his order dated March  26, 1962  passed under  section 25-A of the Act and the  Act did not provide any machinery for imposition of the penalty  on the  Hindu family  after its disruption, the

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imposition of  penalty on  March 20, 1958 was had in law and could not  be sustained.  Counsel appearing on behalf of the Revenue has,  on the  other hand,  urged that  imposition of impugned penalty  cannot be challenged as in view of section 25-A(3) of the Act, a Hindu undivided family must be (deemed to have  continued in existence till the date of the passing of the order under- section 25-A(l) of the Act.      For a  proper determination  of  the  question,  it  is necessary to  refer to  section 25-a of the Act which at the relevant time stood as under:-           25-A.  (1)   Where,  at  the  time  of  making  an      assessment ll  under section 23, it is claimed by or on      behalf of any member   (1) (1957) 27 1. T. R. 307. (2) (1956) 29 I. T. R. 241   (3) (1957) 31 I. T. R 867. (4) (1967) 66 T. T. R. 638. 508      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      thereinto as  he may  think fit, and if he is satisfied      that the  joint family  property has  been  partitioned      among the  various members  or  groups  of  members  in      definite portions,  he shall  record an  order to  that      effect:           Provided that  no such  order  shall  be  recorded      until notices  of the  inquiry have  been served on all      the members of the family           (2) Where  Such an order has been passed, or where      any person  has succeeded  to a business, profession or      vocation formerly  carried  on  by  a  Hindu  undivided      family,  whose   joint   family   property   has   been      partitioned on  or after  the  last  day  on  which  it      carried on  such business.  profession or vocation, The      Income-tx Officer shall make an assessment of the total      income received  by or on behalf of the joint family as      such, as  if no partition(LPN had taken place, and each      member or  group of  members shall   in addition to any      income-tax for which he of may be separately liable and      notwithstanding anything  contained in  sub section (1)      of section  14, be liable for a share of the tax on the      income so  assessed according  to the  portion  of  the      joint family  property allotted  to him  or it; and the      Income-tax officer  shall make  assessments accordingly      with provisions of section 23.           Provided  that  all  the  members  and  groups  of      members  whose   joint   family   property   has   been      partitioned shall  be liable  jointly and severally for      the tax  assessed on the total income received by or on      behalf of the joint family as such.           (3) Where  such an  order has  not been  passed in      respect of  a Hindu  family      hitherto  assessed  as      undivided,  such   family  shall  be  deemed,  for  the      purposes of  this  Act,  to  continue  to  be  a  Hindu      undivided family.‘‘      lt will  be noticed  that sub-section  (3) of the above quoted section embodies a legal fiction according to which a Hindu  family   which  has   been  previously   assessed  as ’undivided’ is  to be continued to be treated as ’undivided’ till the  passing of  the order  under  sub-section  of  the section. This view strength from two decisions of this Court in Additional  Income tax  Officer   Quddapah A. Thimmayya & Anr(1)  and   Joint  family   of  Udayan  Chinubhai  etc  v. Commissioner of Income tax Gujarat(2) where it was held that so long(r  as No  order under  section 25-a(I) of the Act is recorded, the  jurisdiction of  the Income  tax  officer  to

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continue to  assess as  undivided  despite  partition  under personal law a Hindu family which has hitherto been asseesed in that  status remains unaffected. It will be profitable in this connection  (1) (1955) 55 I.T.R. 666. (2) (1957) 63 I.T.R. 416. 509 to refer to the following observation made in A. Thimmayya’s case (supra)           "The section  makes two substantive provisions (i)      that a  Hindu undivided  family Which has been assessed      to tax shall he deemed, for The purposes of The Act, to      continue to  be  treated  as  undivided  and  therefore      liable to  be take  in that  stats unless  an order  is      passed in  respect of  that family recording, partition      of its property as contemplated by sub station (t); and      (ii) if  at the  time of  making an  assessment  it  is      claimed by or on behalf the members of the family  that      the property  of the joint family has been partitioned;      the members  or groups of members in definite portions,      i.e. a  complete partition of the entire estate is made      resulting in such physical division of the estate as it      is capable  of being made. the Income-tax Officer shall      hold an  inquiry, and  if  he  is  satisfied  that  the      partition had  taken place the shall record an order to      that effect  .. The  Income-tax Officer  may assess the      income of  the  Hindu  family  hither  to  assessed  as      undivided notwithstanding  partition, is  no  claim  in      that behalf  has been  make to  him or  is  he  is  not      satisfied about  the truth  of the claim that the joint      family  property   has  been  partitioned  in  definite      politics if on account of some error or inadvertence he      fails Lo  dispose of  the claim. In all these cases his      jurisdiction  to   assess  the  income  of  the  family      hitherto assessed  as undivided  remain unaffected, for      the  procedure   for  making   assessment  of   tax  is      statutory".      In face of the aforesaid decisions of this court, it is Court it is not necessary to burden the record by discussing the decisions cited by counsel for the appellant.      In the  present case,  there was  not a  whisper of the application  under   section  25-A(1)  of  the  Act  by  the appellant on  March 15,  1957 when  the penalty  proceedings were initiated  against it. Even on March 20, 1958, when the penalty was imposed, there was no order under section 25-A(1 ) of  the Act.  It was  only on  March 26,  1962,  that  the partition was  recognised and order under section 25-A(1) of the Act  was passed. There was thus no bar to the imposition of the  impugned penalty.  Accordingly, we  find no force in the contention  of counsel  for the appellant and are of the opinion that  the question as was in the rightly by the High Court.      The  appeal,   therefore,  fails  and  is  but  in  the circumstances to the case without any order as to costs                     S.R.Appeal dismissed 510