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PETITIONER: TATAVARTHI RAJAH & ANR.

       Vs.

RESPONDENT: COMMISSIONER OF WEALTH TAX,HYDERABAD

DATE OF JUDGMENT:       04/04/1997

BENCH: S.C. AGRAWAL, G.B. PATTANAIK

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.C. AGRAWAL, J.      These  appeals  by  the  assessee  raise  the  question whether the  provisions of Section 20 of the Wealth Tax Act, 1957 (hereinafter  referred to  as ’the Act’) can be applied to a  case where the partition in the Hindu undivided family in accordance  with the  principles of Hindu Law taken place before the commencement of the Act.      The assessee was a Hindu joint family constituted by T. Nagapotha Rao  and his  three sons, Sitarama Rao, Raja, Raja and Satyanarayana  Murthi. Sitarama  Rao died  in  1947  and Nagapotha  Rao   died  in   1950.  Thereafter   the   family constituted  of   the  two   minor  coparceners   Raja   and Satyanrayana  Murthy   and  Smt.  Mahalakhsmamma,  widow  of Nagapotha Rao  and Smt, Raja Syamala, widow of Sitarama Rao. Differences arose  between Smt.  Raja Syamala  and the other members of  the family  and on  October 7,  1950  Smt.  Raja Syamala gave  a registered  notice expressing  her desire to separate. On  April 7,  1954 she  filed a suit [O.S. No. 47] for partition  in the court of Subordinate Judge, Tanali. In the said  suit Smt.  Mahalakshmamma on behalf of herself and her two  minor sons filed a written statement on October 27, 1954 agreeing  to the  division of all the family properties into four  equal shares.  On attaining majority Raja as well as Satyanarayana  Murthi  filed  written  statements  making similar request.  On the  basis of  compromiser between  the parties a preliminary decree for partition was passed in the said suit  on April  1, 1956.  The decree  was passed in the suit on  March  16,  1961.  The  person  appeals  relate  to assessment years 1956-59, 1959-60 and 1960-61. In respect of these  returns  were  filed  by  the  assessee  as  a  Hindu undivided Family  consisting of  three members, namely, Smt. mahalakshmamma and  her sons  Raja and Satyanarayana Murthy. the Wealth Tax Officer made the assessment on the basis that there was  no partition  by metes  and bounds and that Hindu Undivided family  consisted of  four members  including Smt. Raja Syamala  and the  properties  allotted  to  Smt..  Raja Syamala were  included in  the  joint  properties  of  Hindu undivided family.  On appeal  it was  submitted on behalf of the assessee  before the  Appellant  Assistant  Commissioner

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that assessee  should be treated as a Hindu undivided family with three  members and not four members. This contention of the  assessee   was,  however,  rejected  by  the  Appellate Assistant Commissioner.  On further appeal before the Income Tax Appellate  Tribunal  (hereinafter  referred  to  as  the ’Tribunal’) the  assessee raised  an additional  ground that there was  severance in  status of  Hindu  undivided  family early as on October 7, 1950 when the first registered notice was  issued  by  Smt..  Raja  Syamala  filed  the  suit  for partition  as  well  as  on  October  27,  1954  when  Smt.. Mahalakshmamma, on behalf of herself and her two minor sons, filed the written statement claiming that all the properties be divided  in four equal shares. The said additional ground was permitted  to be raised by the Tribunal since, according to the  Tribunal, it  went to  the root  the matter, namely, whether assessee,  it went to the root of the matter, namely assessee was  in existence  at all.  After  considering  the submissions of  both the  sides the Tribunal has stated that the present  claim of  the assessee  is that  in fact on the valuation dated  for all these assessment years there was no Hindu undivided  family of  the type taken by the Wealth Tax Officer and the family was, if at all, disrupted a long time before the  Wealth Taxa  Act came into force and accordingly the provisions  of Section 20(2) of the Act do not apply and the Wealth  Tax Officer  ought to have assessed the assessee on what  exactly wee  his assets  rather than  on the assets held by  all the  members of  the erstwhile family together. The Tribunal  felt that  the assessee  had reasonable ground for the  present claim  to be considered in the light of the facts and  the law  applicable to them and if the family had acquired different  status long  before the  Act  came  into force, the  family as  assessed for  these assessments would not be  in existence  on the  valuation dates, The Tribunal, therefore, cancelled   the  assessment orders  for the three assessment years  before it  and sent the matter back to the Wealth Tax  Officer to  decide afresh the question as to who the assessee  is and  what assets  formed part  of  his  net wealth.  At  the  instance  of  the  Revenue,  the  Tribunal referred the  following question for the opinion of the High Court  of Andhra Predesh :      "Whether on  the facts  and in  the      circumstances  of   the  case,  the      Appellate Tribunal  is justified in      cancelling    the     Wealth    Tax      assessments for  the years 1958-59,      1959-60 and 1960-61 ?"      The said  question has  been answered by the High Court by the  impugned judgment dated August 26, 1982 in favour of the Revenue  and against  the assessee.  The High  Court has held that  having regard  to the language of sub-section (1) of Section  20, no  distinction can  be made  between a case where the  partition is  alleged to  have taken place before the commencement  of the Act and where the partition is said to have  taken place  after the commencement of the Act. The idea behind  Section 20  of the Act is that unless the joint family properties  are divided  into definite  portions  and allotted to  each individual member, it cannot be said hat a particular member can be assessed with respect to particular properties. If  it is  contended that  a  mere  division  in status is  sufficient for  the purpose  of putting an end to the Hindu undivided family, even for the purpose of Act, the resultant situation would be that, while the Hindu undivided family cannot  be assessed  on  the  ground  that  on  Hindu undivided family is in existence, the members also cannot be assessed, because  until the  properties  are  divided  into

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definite  portions,  it  cannot  be  said  which  member  is entitled to  which property.  The High Court has agreed with the  decision   of  the   Gujarat  High   Court  in  Goswami Brijratanlalji Meharaj v. Commissioner of Wealth Tax, (1971) 79 ITR  373, and  has differed  from  the  decision  of  the Calcutta High  Court in Shri Srilal Bagri v. Commissioner of Wealth Tax,  (1970) 77 ITR 901. In view of the difference of opinion between  the High  Courts on  the question, the High Court has  granted certificate of fitness for appeal to this Court. Hence this appeal.      Section 20  of the  Act provides as      under :-      "20 (1).  Where,  at  the  time  of      making an assessment, it is brought      to the  notice  of  the  Wealth-tax      Officer that  a partition has taken      place among  the members of a Hindu      undivided family,  and the  Wealth-      tax  Officer,   after  enquiry,  is      Wealth-tax Officer,  after enquiry,      is satisfied  that the joint family      property has  been partitioned as a      whole among  the various members or      groups  of   members  in   definite      portions, he  shall record an order      to  that   effect  and  shall  make      assessments on  the net  wealth  of      the undivided  family as  such  for      the  assessment   year  or   years,      including the  year relevant to the      previous   year    in   which   the      partition has  taken place,  if the      partition has  taken place  on  the      last day  of the  previous year and      each member  or groups  of  members      shall   be   liable   jointly   and      severally for  the tax  assessed on      the net  wealth of  joint family as      such.      (2) Where the Wealth-tax Officer is      not so satisfied, he may, by order,      declare that  such family  shall be      deemed for  the purpose of this Act      to continue  be a  Hindu  undivided      family liable  to  be  assessed  as      such,"      The said  provision is  similar to  that  contained  in Section 25A  of the  Income Tax Act, 1922 and Section 171 of the Income  Tax Act,  1961. These provisions in the tax laws make a  departure from  the personal law governing partition in a  joint  Hindu  family,  Under  the  Hindu  law  a  mere declaration on  an intention  to severe  the joint status of the members  of the  Hindu undivided family is sufficient to constitute partition  and the  moment such  a declaration is made, the  joint family  comes to an end and, thereafter the members of  undivided family  become separated in status and they hold  the joint family property as tenants under common ownership with definite shares in that property. But for the purpose of  assessment of  Income Tax  and  Wealth  Tax  the legislature has imposed the requirement that for a partition in a  Hindu undivided family, it is necessary that the joint family properly  should be  partitioned  among  the  various members or group of members in definite portions.      The rationale  for the  introduction of Section 25-A in the Indian  Income Tax  Act, 1922 has been thus explained by

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Venkatarama  Aiyar   J.   in   Lakshmichand   Baijnath   vs. Commissioner of Income Tax, West Bengal, [1959 Supp. (1) SCR 415; 35 ITR 416]:      "That Section  was,  it  should  be      noted  introduced   by  the  Indian      Income Tax (Amendment) Act, 1928 (3      of 1928),  for  removing  a  defect      which the  working  o  the  Act  as      enacted  in   1922  had  disclosed.      Under the  provisions of the Act as      they stood  prior to the amendment,      when the  assessee was an undivided      family, no assessment could be made      [hereon  if  at  the  time  of  the      assessment it  had become  divided,      because  at  that  point  of  time,      there was  no undivided  family  in      existence  which  could  be  taxed,      though when the income was received      in the  year of  account the family      was joint. Nor Could the individual      members of  the family  be taxed in      respect of  such income as the same      is exempt from tax under s.14(1) of      the  Act,   The  result   of  these      provisions was  that a joint family      which had  become  divided  at  the      time  the  assessment  escaped  tax      altogether. To  remove this defect,      s. 25A  enacted that until an order      is made  under that  selection, the      family should be deemed to continue      as an  undivided family." [pp. 421-      422]      The object  underlying Section 20 of the Act is also to avoid a  situation where  neither the Hindu undivided family nor the  individual members  can be  taxed in respect of the property of  the joint family. With that end in view Section 20 prescribes that if at the time of making an assessment it is claimed  that a  partition  has  taken  place  among  the members of a Hindu undivided family, the Wealth Tax Officer, after making  an inquiry,  must satisfy  himself that  joint family property  has been  partitioned as  a whole among the various members  or groups  of members  in definite portions and if  he is  so satisfied he has t record an order to that needs to  be considered is whether the provisions of Section 20 are  confined in  their application  to cases  where  the severance in  the Hindu  undivided family is claimed to have taken place  after the  coming into force of the Act and the provision has no application to cases where the severance in the joint  family is  claimed to  have taken  place prior to coming into force of the Act.      The  Calcutta  High  Court  in  Shri  Srilal  Bagri  v. commissioner of  Wealth Tax  (supra) has taken the view that Section 20  does not empower assessment of a Hindu undivided family which  has ceased  to be  a  Hindu  undivided  family according to  the relevant  Hindu law  prior to the relevant valuation date  and that  where the  family had  never  been assessed under  the Act  as Hindu  undivided  family  and  a preliminary decree  for partition  had been  passed prior to valuation date  Section  20 does not authorise assessment of the members  of the family as a Hindu undivided family after the preliminary decree. In taking the view the Calcutta High Court has  proceeded on the basis that Section 20 is in pari materia with  Section 25A of the Income Tax Act, 1922 and is

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only a  machinery section. The High Court has also held that in view  of  the  position  of  Hindu  law  that  after  the unequivocal  expression   of  intention   to  separate   the individual member  of the  erstwhile Hindu  undivided family will have  no interest  in the  coparcenary property  of the Hindu undivided  family of  which he  was a  member and sub- section (ii)  of Section 5(1) of the Act would be no bar for assessment in  respect of the properties in the hands of the erstwhile members  of the Hindu undivided family even though the properties have not yet been divided amongst the members in definite  portions. The  High Court has further held that sub-section (2)  of Section  20 would not be attracted where no prior assessment had been made of the assessee as a Hindu undivided family under the Act because in that even there is no question  of this  family being continued to be liable to be assessed as such under sub-section (2) of Section 20.      In Goswami  Brijratanlalji Meharaj  v. Commissioner  of Wealth Tax (supra) after taking note of the reasons given by the  Calcutta  High  Court  in  the  Shri  Srilal  Bagri  v. Commissioner of  Wealth Tax  (supra), the  learned Judges of the Gajarat  High Court Have pointed out that the words "not previously assessed" occurring is Section 25-A of the Indian Income Tax  Act, 1922  have been  omitted from Section 20 of the Act  and the  legislature has  merely  used  the  worlds "where at  the time  of making  the assessment". The learned Judges have observed:      "Therefore,  at  any  time  when  a      Wealth-tax Officer  is  making  the      assessment, a  contention is raised      or is  sought to  be raised  before      him  that  a  partition  has  taken      place amongst  the members  of  the      Hindu undivided  family, he  has to      enter upon  an inquiry  and satisfy      himself whether  there has  been  a      partition by  metes and  bounds. If      he is  not so  satisfied about  the      joint family properties having been      partitioned  b   metes  and  bounds      amongst the various members, he has      to declare under sub-section (2) of      Section 20  that such  family shall      be deemed  for the  purposes of the      Act  to  continue  to  be  a  Hindu      undivided  family   liable  to   be      assessed   as   such.   Once   that      declaration under  section 20(2) is      made, it  becomes clear  that  even      for   the   purposes   of   Section      5(1)(ii) of  the Act,  the interest      of any  individual  member  of  the      joint   family    in    coparcenary      property  of  any  Hindu  undivided      family of  which he is a member can      be safely  excluded. The  words for      the purposes  of this Act occurring      in  Section   20(2)  would  include      within their ambit section 5(1)(ii)      as  well   and  so   long  as   the      satisfaction about  the  properties      of the  joint  family  having  been      partitioned by  metes and bounds is      not  reached   by  the  Wealth  tax      Officer, he  has  to  declare  that      such family for the purposes of the

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    Act  shall  continue  to  be  Hindu      undivided  family   liable  to   be      assessed  as   such.  Once  such  a      declaration is  made,  even  though      for the purposes of Hindu Law there      is disruption  of the joint family,      for the  purposes of the Wealth-Tax      Act  the   family  is   deemed   to      continue   to be  a Hindu undivided      family liable  to  be  assessed  as      such.  Therefore,   the   undivided      share of  interest of an individual      member  of   such  Hindu  undivided      family will continue to be assessed      as part  of  the  property  of  the      Hindu undivided family and will not      be includible in the next wealth of      that individual  member." [pp. 387,      388]      "In out  opinion, the question that      has to be considered by the Wealth-      tax Officer  is not  whether  there      has been  a  disruption  in  status      according to  notions of  Hindu law      but  whether   there  has   been  a      partition by  metes and  bounds and      whether there  has been  a physical      partition  of   properties  of  the      Hindu  undivided   family   amongst      different members;  and it  is only      after   that   test   of   physical      partition by  metes and  bounds  is      satisfied   that    the   necessary      consequences for  the  purposes  of      assessment under the Wealth-tax Act      will follow." [p. 389]      We are  in agreement with these observations and we are unable to  agree  with  the  interpretation  placed  by  the Calcutta  High   Court  in   Srilal  Bagri  [Supra]  on  the provisions of  Section  20  of  the  Act.  In  the  impugned judgment the  learned judges,  in our  opinion, have rightly observed that  no distinction  an be  made between  the case where partition  is alleged  to have  taken place before the commencement of  the Act  and where the partition is said to have taken  place after  the commencement of the Act as well as Section  171 of  the income  Tax Act,  1961 is that for a given assessment year either the Hindu undivided family must be assessed or its members must be assessed individually and unless the  joint family  properties are divided in definite portions and  allotted to  each individual member, it cannot be said  that a  particular  member  can  be  assessed  with respect to  particular properties or income, as the case may be, and  a mere  division in  status does not indicate which member is  entitled to  which of the properties. The learned Judge have  also mentioned  that in the present case returns were filed  by the Hindu undivided family in the status of a Hindu undivided  family and  the only difference between the assessee and  the department  was whether  it  comprised  of three members  of  four  members,  i.e,  whether  Smt.  Raja Syamala must  also be  treated as  a  member  of  the  Hindu undivided family  or not  and that  it was  only before  the Tribunal it  was contended for the first time that there was a division  in status  between the parties long prior to the coming into force of the Act.      We are  of the  view that  the approach  of the Gujarat

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High Court  in Goswami Brijratanlalji Mehraj v. Commissioner of Wealth  Tax (supra) and that of the learned judges in the impugned judgment in the matter of interpretation of Section 20 of  the Act  is correct  and we are in agreement with the same.      In that view of the matter, we do not find any merit in these appeals and same are accordingly dismissed. But in the circumstances there will no order to costs.