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PETITIONER: ADDITIONAL INCOME-TAX OFFICER, CUDDAPAH

       Vs.

RESPONDENT: A. THIMMAYYAAND OTHERS

DATE OF JUDGMENT: 09/11/1964

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

CITATION:  1965 AIR 1238            1965 SCR  (2)  91  CITATOR INFO :  RF         1972 SC 294  (12)  R          1976 SC1678  (6)  RF         1977 SC 552  (7)  R          1981 SC1965  (14,16)  R          1982 SC 760  (13)

ACT: Income-tax Act (XI of 1922), s. 25-A (1) and (2)-Scope of.

HEADNOTE: While  proceedings  for assessment of the  income-tax  of  a Hindu  undivided  family,  of  which  the  respondents  were members,  were pending, there was a partition in the  family and  a consequent claim for recognising the partition  under s.  25-A(1)  of  the Income-tax Act (XI of  1922)  was  made before   the  Income-tax  Officer.   The   officer   however proceeded to assess the tax as if there was no partition and after  the  order of assessment was made,  passed  an  order recognising the partition.  The amount of tax determined  by the officer was questioned on appeal and before the Tribunal but  without  success.  As the tax due was  in  arrear,  the officer  sought  to attach the remuneration  earned  by  the respondents as employees of a firm, by resorting to s. 46(5) of  the  Act.  The respondents challenged the order  of  the Income-tax Officer under s. 46(5), by a writ petition  which was allowed by the High Court on the ground that the Income- tax  Officer  could not proceed to collect the  tax  without apportioning the tax liability under 25-A(2).  In appeal  to the Supreme Court, HELD : Though the High Court was in error in holding that an order of  assessment which had become final was liable to be reopened under s.25-A(2) by the Income-tax Officer when  the order  under s. 25-A(1) was passed by him subsequent to  the order of assessment, the appeal should be dismissed because, so  long as there was an assessment of the  Hindu  undivided family,  the  liability for payment of the tax  was  on  the property  of the family and there was no personal  liability on the members. [97 E-F, H] The  scheme of the section is that a Hindu undivided  family assessed  in  respect of its income, would  continue  to  be assessed  in that status notwithstanding a partition of  the

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property  among  its members.  If a claim is raised  at  the time  of  making  an assessment that a  partition  had  been effected, the Income-tax Officer must make an inquiry  after notice  to all the members of the family and make  an  order that  the family property had been partitioned  in  definite portions  if  he  is so satisfied.  He is  however,  by  law required  to  make the assessment on the income of  the  un- divided family, as if no partition had taken place and  then to  apportion  to each member or group of members  the  tax- liability  according to the portion of the  family  property allotted.   In such a case the members of the  family  stand jointly  and severally liable for the entire amount of  tax, under  the proviso to sub. (2) of section.  It no claim  for recording partition is made, or if a claim is made and it is disallowed,  or the claim is not considered by the  officer, the  assessment  will  continue  as if  there  has  been  no partition,  and  so long as the assessment is  made  on  the income of the undivided family, the liability to satisfy the tax must be restricted to the estate of the family. [96 B-F]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos.  1019-1020 of 1963. Appeals from the judgment and orders dated August 3, 1961 of the Andhra Pradesh High Court in Writ Appeals Nos. 49 and 50 of 1960. 92 S.   V. Gupte, Solicitor-General, N. D. Karkhanis and R.  N. Sachthey, for the appellant (in both the appeals). K.N.  Rajagopala  Sastri,  A. Ramachandran  for  R.  Gopala- kkrishnan, for the respondent (in both the appeals). The Judgment of the Court was delivered by Shah,   J.  Krishnappa  and  his  two   sons-Thimmayya   and Venkatanarsu-constituted  a  Hindu undivided  family.   They carried  on  business  in mining in the name  and  style  of Krishnappa and Sons.  The family was disrupted in 1946,  and all  its  properties were divided among the members  of  the family.  The business of Krishnappa and Sons was taken  over by a firm of which the partners were Krishnappa and his  two sons.  A private limited Company styled "Krishnappa Asbestos and  Barytes (Private) Ltd." took over the business  of  the firm  on May 21, 1947 for Rs. 2,04,000.  Thimmayya  obtained employment  under the Company as Mines Superintendent  at  a monthly  salary  of  Rs. 400  and  Verkatanarsu  as  General Manager at a monthly salary of Rs. 500. Proceedings for assessment of tax due by the Hindu undivided family for the years 1941-42, 1942-43, 1944-45, 1945-46  and 1946-47  were pending at the time when the  Hindu  undivided family was disrupted.  On May 20, 1946, Venkatanarsu claimed before the Additional Income-tax Officer, Cuddapah that  the property of the Hindu undivided family had been  partitioned among the members indefinite portions.  For reasons which do not  appear from the record; this claim was not disposed  of till  June  30, 1952. In the meanwhile assessments  for  the five  years in question were made by the Income-tax  Officer on diverse dates between September 30, 1948 and November 30, 1950,  resulting  in a tax liability of Rs.  65,750  in  the aggregate for the five years.  Appeals prepared against  the orders of assessment to the Appellate Assistant Commissioner and  the Income-tax Appellate Tribunal proved  unsuccessful. It is common ground that it was not contended in the appeals that  in making the orders of assessment, without  disposing of  the  claim that the family was disrupted  in  1946,  the

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Income-tax Officer had acted illegally. On  June  30, 1952 the Income-tax Officer,  Special  Circle, Madras,  made  an  order under s. 25-A  recording  that  the property of the Hindu undivided family of Krishnappa and his sons  was partitioned on November 2, 1946.  As the  tax  due was  not paid the Income-tax Officer made an order under  S. 46(5)  of the Indian Income-tax Act, 1922 on June  25,  1958 calling upon the Managing Director to withhold the amount of tax due from the salaries 93 payable to the defaulters Thimmayya and Venkatanarsu and  to show the same to the credit of the Government of India. Thimmayya and Venkatanarsu then lodged petitions under  Art. 226 of the Constitution in the High Court of Andhra  Pradesh at  Hyderabad,  praying that writs of  certiorari  or  other appropriate  writs be issued quashing the order  dated  June 25,  1958  of the Income-tax Officer under s.  46(5).   They founded  their petitions on two grounds-(i) that  after  the Income-tax Officer recorded an order on June 30, 1952  under s.  25-A(1) that the family had disrupted "with effect  from November 2, 1946", steps taken for recovery of the amount of tax  assessed without an appropriate order under s.  25-A(2) were  invalid, and (ii) arrears of tax due by the  erstwhile Hindu   undivided  family  could  not  be   recovered   from remuneration  earned  by them as employees of  the  Company. The  petitions were decided by Seshachelapati J., in  favour of  the two petitioners, and the decision was  confirmed  in appeal  by  a  Division Bench of the High  Court  of  Andhra Pradesh.   The High Court held that the order on  the  claim made  under s. 25-A(1) on June 30, 1952 was given  "a  clear retrospective  operation",  and the Income-tax  Officer  was bound  "to  give  effect  to  that  order  recognising   the partition and to follow up the consequences which flowed from  the  order".  In  the  view  of  the  High  Court  the petitioners  were  entitled  to insist  upon  an  order  for apportionment under s. 25-A(2) and without  such  an  order, proceedings  for  collection of tax could not  be  commenced against  them under the proviso to sub-s. (2 ) of  s.  25-A. Against  the  order of the High Court, with  certificate  of fitness,  these  two  appeals have  been  preferred  by  the Income-tax Officer, Cuddapah. Under  the  Indian Income-tax Act, 1922,  as  it  originally stood,  a Hindu undivided family was regarded by s. 3  as  a unit of assessment, but no machinery was set up for  levying tax or for enforcing liability to tax on the members of  the family,  if  before the order of assessment the  family  was divided.   Absence of this machinery was more  acutely  felt because  of s. 14(1), which provided that tax shall  not  be payable  by  an  assessee in respect of  any  sum  which  he received  as a member of a Hindu undivided  family.   Income received by a Hindu undivided family could not therefore  be assessed and collected from the members of the family. if at the  time of making the assessment the family  was  divided. To  rectify  what was obviously a  lacuna,  the  Legislature incorporated  s.  25-A  for assessment  and  enforcement  of liability  to  tax  income received  by  a  Hindu  undivided family, which was no 94 longer in existence at the date of assessment.  But the  new section  went very much beyond rectifying the defect in  the statute  which  necessitated the  amendment.   Section  25-A incorporated  by  the Indian Income-tax Amendment Act  3  of 1928 at the material time read as follows               "(1)   Where,  at  the  time  of   making   an               assessment under section 23, it is claimed  by

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             or  on behalf of 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 there into 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-tax Officer               shall  make an assessment of the total  income               received  by or on behalf of the joint  family               as  such, as if no partition had taken  place,               and each member or group of members shall,  in               addition to any income-tax for which he or  it               may  be separately liable and  notwithstanding               anything contained in sub-section (1) of  sec-               tion  15, 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 on  the  various               members  and groups of members  in  accordance               with the 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,               95               such family shall be deemed, for the  purposes               of  this  Act,  to  continue  to  be  a  Hindu               undivided family." The  Section  makes two substantive  provisions-(i)  that  a Hindu undivided family which has been assessed to tax  shall be  deemed  for the purposes of the Act, to continue  to  be treated  as unadivided and therefore liable to be  taxed  in that  status  unless an order is passed in respect  of  that family  recording partition of its property as  contemplated by  sub-s.  (1);  and  (ii) if at  the  time  of  making  an assessment  it is claimed by or on behalf of the members  of the  family that the property of the joint family  has  been partitioned  among  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, he shall record an order  to that effect.  Where an order has been passed, the Income-tax Officer  must still make an assessment of the  total  income received  by or on behalf of the undivided family as  if  no

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partition  had taken place, and shall  thereafter  apportion the income-tax assessed on the total income received by  the family  and  assess  each  member or  group  of  members  in accordance  with  the provisions of s. 23 by adding  to  the incometax  for which such member or group of members may  be separately  liable, tax proportionate to the portion of  the undivided  family property allotted to him or to the  group. This    apportionment   and   fresh    assessment    operate notwithstanding  anything contained in sub-s. (1) of s.  14. The  proviso  to  sub-s. (2) makes a departure  of  a  vital character.   Whereas  in the case of an  assessment  of  the income  of  the joint family, the tax liability  is  charged upon  the  assets of the family, when upon  a  partition  an order  under  sub-s. (1) has been recorded all  members  and groups  of members are expressly declared by the proviso  to be jointly and severally liable for the tax assessed on  the total  income received by or on behalf of the joint  family. -Liability which so long as an order was not recorded  under s.  25-A(1)  was  restricted  to the  assets  of  the  Hindu undivided  family is by virtue of the proviso to sub-s.  (2) transformed  when  the  order  is  recorded,  into  personal liability  of the members for the amount of tax due  by  the family. An  order  under  sub-s. (1) can only  be  made  if  certain conditions co-exist-the family in question has been hitherto assesse  das  undivided and a claim is made at the  time  of making anassessment  that partition of the family  property has been madebetween 96 the members or groups in definite portions.  Sub-section (2) of  s. 25-A becomes effective only if an order under S.  25- A(1)  is made and not otherwise.  In terms the’  sub-section enacts  that the Income-tax Officer shall assess  the  total income  received  by or on behalf of the  joint  family  and apportion  it in the manner provided by sub-s. (2) where  an order is passed under sub-s. (1). The scheme of S. 25-A is therefore clear : a Hindu undivided family  hitherto  assessed  in respect of  its  income  will continue  to  be  assessed in  that  status  notwithstanding partition of the property among its members.  If a claim  is raised at the time of making an assessment that a  partition has  been  effected,  the Income-tax Officer  must  make  an inquiry  after notice to all the members of the  family  and make an order that the family property has been  partitioned in  definite  portions, if he is satisfied in  that  behalf. The Income-tax Officer is by law required still to make  the assessment  of the income of the Hindu undivided family,  as if  no partition had taken place, and then to apportion  the total  tax liability and to add to the tax on  the  separate income  of  the  members  or  groups  of  members  the   tax proportionate  to the portion of the joint  family  property allotted  to such members or groups of members and  to  make under  S. 23 assessment on the members accordingly.   If  no claim for recording partition is made, or if a claim is made and  it is disallowed or the claim is not considered by  the Income-tax  Officer, the assessment of the  Hindu  undivided family  which has hitherto been assessed as  undivided  will continue  to  be made as if the Hindu undivided  family  has received the income and is liable to be assessed. Failure  to make an order on the claim made does not  affect the  jurisdiction  of  the Income-tax  Officer  to  make  an assessment  of  the  Hindu family which  had  hitherto  been assessed as undivided. The Income-tax Officer may assess the income  of the Hindu family hitherto assessed  as  undivided notwithstanding  partition, if no claim in that  behalf  has

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been  made to him or if he is not satisfied about the  truth of  the  claim  that  the joint  family  property  has  been partitioned  in definite portions, or if on account of  some error or inadvertence he fails to dispose of the claim.   In all these cases his jurisdiction to assess the income of the family  hitherto assessed as undivided  remains  unaffected, for the procedure for making assessment of tax is statutory. Any error or irregularity in the assessment may be rectified in the manner pro- 97 vided by the statute alone, and the assessment is not liable to be challenged collaterally. In  the present case claim was undoubtedly made at the  time of making an assessment, that the property of the family was partitioned.   The claim was not disposed of  before  making the  assessment,  and the Income-tax  Officer  proceeded  to assess  the income of the family as if the property  of  the family  had not been partitioned.  It is true that by  order dated  June  30, 1952 the Income-tax Officer held  that  the property of the family was partitioned on November 2,  1946. But the Act contains no machinery authorising an  Income-tax Officer  to  re-open  an assessment  of  a  Hindu  undivided family,  relying upon an order made by him under s.  25-A(1) after the order of assessment is made.  In the present  case appeals were filed and it is common ground that no objection was raised as to the regularity or legality of the procedure followed   by  the  Income-tax  Officer.    The   assessment proceedings were taken to the Income-tax Appellate  Tribunal and the orders of assessment were confirmed.  Thereafter  it was not open to the Income-tax Officer to re-open the orders of   assessment,  relying  upon  the  order  recording   the partitions  and to seek to subvert orders which  had  become final  under the seal of the Income-tax Appellate  Tribunal. The  High  Court was, in our judgment, in error  in  holding that an order of assessment which has become final is liable to be re-opened under s. 25-A(2) by the Income-tax  Officer, when an order under s. 25-A (1) is passed by him  subsequent to the order of assessment. But  the appeals filed by the Income-tax Officer must  still fail.  Order recording the partition subsequent to the  date on  which the order of assessment was made must for  reasons aforementioned be   ignored  and  tax levied as if  no  such order was made.  The effect of that step however is that  in the   absence  of  an  order  under  s.  25-A(1)   and   the consequential proceedings under sub-s. (2) liability to  pay tax  must  rest  upon the property of  the  Hindu  undivided family  : it cannot be enforced against the members  of  the family  personally.   The Income-tax Officer has  sought  by resorting  to s. 46(5) to attach the remuneration earned  by Thimmayya  and  Venkatanarsu  as  employees  of   Krishnappa Asbestos & Barytes (Private) Ltd. this he was incompetent to do. So long as the assessment is made of income of the Hindu undivided  family,  liability  to satisfy the  tax  must  be restricted  to the estate of the family : after an order  of partition is recorded 98 and  assessment is made under sub-s. (2) of S. 25-A but  not till then, the proviso to that sub-section will operate. The Solicitor-General contended that the second paragraph of sub-s.  (2)  which  is  in the form  of  a  proviso,  is  in substance a substantive provision imposing joint and several liability  for tax assessed on the total income received  by or on behalf of the joint family against all members of  the family.    The  contention  is  that  by  the  proviso   the Legislature  intended  that in respect of the  income  of  a

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Hindu undivided family, once partition is effected,  whether the  partition  is  recorded or not under  sub-s.  (1),  all members  of the family will be jointly and severally  liable for  the tax assessed on the total income received by or  on behalf of the family.  But howsoever read the proviso yields no such meaning. The scheme of the section is that so long as there is an  of the Hindu undivided family, the liability for payment of the tax  is on the property of the family and not personally  on the members.  Where an order that the property of the family has  been  partitioned  is recorded, the  liability  of  the members has to be apportioned in the manner set out in  sub- section,  but  one  of the  incidents  of  assessment  after apportionment  of tax liability is That the members  of  the family  stand  jointly and severally liable for  the  entire amount of tax assessed against the family. In  the present case no orders were recorded by the  Income- tax Officer at the time of making assessments in respect  of the  five years, and therefore no personal liability of  the members of the family arose under the proviso to sub-s. (2). The  Income-tax Officer does not seek to reach in the  hands of  Thimmayya and Venkatanarsu the property which  was  once the  property  of the Hindu undivided family;  he  seeks  to reach the personal income of the two respondents.  That  the Income-tax Officer could do only if by virtue of the proviso to  sub-section (2) a personal liability has arisen  against them.  In the absence of an order under sub-s. (1), however, such  a liability does not arise against the members of  the Hindu undivided family, even if the family is disrupted. We  are,  therefore  of the view, but not  for  the  reasons mentioned  by  the High Court, that because there  has  been before the orders of assessment no order recording that  the property  of  the  family has  been  partitioned  among  the members, the two dents are not personally liable to  satisfy tax  due by the joint family.  The remedy of the  Income-tax authorities in the circumstances of the case, was to proceed against the property, 99 if any, of the Hindu undivided family.  That admittedly they have not done. The  order of the High Court must, therefore, be  confirmed’ and  the  appeals dismissed with costs.  There will  be  one hearing fee. Appeals dismissed.