C. Kishnasami Naidu vs The Commissioner of Income Tax

V. Ramaswami, J.—The Assessee is a Hindu undivided family. Its kartha was one V. Govindaswami Naidu. Its income consisted of income

from a tannery business and share incomes from a partnership firm by name V. Baluswami Naidu & Co. and another firm by name Nayudu Cuffee

Supply Company The income tax returns for the assessment years 1948-49 and 1949-50 were filed by Govindaswami Naidu as the kartha. The

enquiries made by the Income Tax Officer during the course of the assessment proceedings for the assessment year 1949-50 revealed that a sum

of Rs. 53,142 and another sum of Rs. 1,060 bad been deposited on 25th June 1947. and 30th August 1947, respectively, in the Pudnkottai Co-

operative Central Bank Limited, in the name of Dewan Peshkar by and on behalf of Govindaswami Naidu. These two deposits totaling Rs. 54,202

were found to have been utilised for payments of lasts for certain abkari contracts for which the licence was in the name of Govindaswami Naidu.

Govindaswami Naidu submitted an explanation in which he pleaded that he was a benamidar for one Bakthavathsalu who wanted to bid at the

auction for the abkari contract at Puduk-kottai and that as that person was not in a position to file a solvency certificate, he sought the help of

Govindaswami Naidu to bid in the auction. Baktha-vathsalu was examined by the Income Tax Officer. The Income Tax Officer also found that a

sum of Rs. 946-12-3 being the interest due on the deposit had also been withdrawn by the said Govindaswami Naidu. It was common ground that

the receipt of this interest had also not been accounted in the asseesee''s books of account.

Not accepting the explanation offered by the said Govindaswami Naidu, the Income Tax Officer added a sum of Rs. 54,000 as income from

undisclosed source to the income returned for the assessment year. \ 1949-50. On appeal by the Assessee the Appellate Assistant Commissioner

held that though there was ample evidence for the finding of the Income Tax Officer that the amount belonged to the Assessee, since the deposits

were made prior to the year of account on 25th June, 1947 and 30th August 1947, they could not be assessed in the assessment year 1949-50. In

the result, he deleted the sum of Rs. 54,000 with a direction that suitable action may be taken for assessing the amount in the earlier year.

In the meanwhile, on 13th December 1853, Govindaswami Naidu, the kartha passed away and his only son Krishnaswami Naidu became the

kartha of the Hindu undivided family. Therefore, the notice u/s 34 of the Income Tax Act, 1922 was served on Krishnaswami Naidu in respect of

the assessment year, 1948-49. In response to the notice, a return was filed under protest with a submission that there had been no default on the

part of the Assessee to place all the materials before the assessing authority. Simultaneously, penalty proceedings u/s 28(1)(c) of the Act were also

initiated against the Assessee by a notice, dated 4th March 1957. In the proceedings u/s 34(1)(a) it was held that the deposits made in the

Pudukottai Co-operative Central Bank Ltd., really belonged to the Assessee family. The Assessee appealed to the Appellate Assistant

Commissioner against this order u/s 34 which was unsuccessful. The Tribunal also refused to state a case to the High Court and the Assessee''s

petition to the High Court to direct the Tribunal to state a case was also dismissed.

In the penalty proceedings, Krishnaswami Naidu as the kartha of the asseasset submitted that he had neither concealed the particulars of income

nor deliberately furnished any inaccurate particulars thereof. He contended further that as the previous kartha of the family Govindaswami Naidu

passed away on 13th December 1953, the present kartha (Krishnaswami Naidu) who was not conscious of any concealment by him could not be

proceeded against u/s 28. It has now been found that the present kartha was a young man at the time when the return for the assessment year

1948-49 was submitted by the then kartha, that the present kartha was not conversant with the business affairs and that therefore, he cannot be

said to be guilty of conscious concealment of income or deliberate furnishing of inaccurate particulars thereof. But in the view that any change in the

karthaship by death or otherwise cannot affect the legal continuity of the Hindu undivided family as a juristic entity, it was held that in respect of

concealment of income or deliberate furnishing of inaccurate particulars in the return submitted by the previous kartha, proceedings u/s 28(1)(c)

could be taken against the Hindu undivided family even after the death of the previous kartha who filed the inaccurate return. Ultimately, the levy of

penalty of Rs. 10,000 made by the Income Tax Officer was confirmed by the appellate Assistant Commissioner and the Tribunal. At the instance

of the Assessee, the following question has been referred u/s 66(1) of the Act:

Whether on the facts and in the circumstances of the case the levy of penalty u/s 28(1)(c) on the Assessee as the succeeding karatha of the Hindu

undivided family was valid in law.

The relevant portion of Section 28 of the Income Tax Act, 1922 reads as follows :

28(1) If the income tax Officer, the Appellate Assistant Commissioner or the appellate Tribunal, in the course of any proceedings under the Act, is

satisfied that any parson:

(c) has concealed the particulars of his income or delis craftily furnished inaccurate particulars of such income, he or it may direct that such person

shall pay by way of penalty...and in the cases referred to in clauses (6) and (c) in addition to any tax payable by him, a sum not exceeding one and

a half times the amount of the income tax and super tax if any, which would have been avoided if the income as returned by such person had been

accepted as the correct income.

Person is defined in Section 2(9) as including a Hindu undivided family and a local authority. u/s 3, income tax shall be charged in respect of the

total income of the previous year of every Hindu undivided family. It is evident from a reading of Section 28, and sections 2(9) and 3, that Section

28 deals with only assessable persons and the expressions any person and such person occurring in that Section refer to the same assessable

person or entity. A : Hindu undivided family could, therefore, be exposed to an order for penalty in the circumstances and conditions mentioned in

Section 28(1).

In order to attract liability for penalty u/s 28(1)(c), three essential conditions have to be satisfied--(i) the concealment of the income or the

deliberate furnishing of inaccurate particulars of such income was in the return submitted or with reference to the return submitted. In other words,

the concealment of the income from the assessing authorities ; (ii) such concealment of in corns or deliberate furnishing of inaccurate particulars

must have been by the Assessee; and (iii) the concealment of income or furnishing of inaccurate particulars must be a conscious or deliberate act of

the Assessee.

Obviously, the first condition is satisfied in this case because the Income Tax Officer has found that the deposits of Rs. 54,202 belonged to the

Assessee and this was not disclosed in the return submitted by the Assessee for the assessment year, 1948 49.

The learned Counsel for the Assessee contended that in the case of death of a kartha of a family and succeeded by another kartha there is a

change in the Hindu undivided family and, therefore, the assessable entity becomes different. Since the return submitted by the previous kartha was

on behalf of the then Hindu undivided family, which was a different entity, proceedings could not be initiated against the Hindu undivided family, as

now existing u/s 28 in respect of the return submitted by the previous kartha. He further contended that in any case in this case the original Hindu

undivided family consisted '' of only two copa ceners, the father and son, and on the death of the father the Hindu undivided family came to an end

and the son became the individual Assessee. We are clearly of opinion that this contention is incorrect and not acceptable. Under the scheme of

the income Tax Act, a Hindu undivided family is a distinct taxable entity apart from the individual members who constitute that family. For the

purposes of assessment under the Income Tax Act, it is a juristic entity. Any change in the karthaship would not affect the legal continuity of that

juristic entity. If any authority is needed for this proposition, we may refer the decision in Radha Rukmani Ammal v. Commissioner of Income Tax

ITR 704. It is also not correct to state that the property in the handa of a single coparcener was not the property of a Hindu undivided family

and that a Hindu undivided family comes to an end as an entity when the coparceners are reduced to a single individual. This point was specifically;

considered by the Supreme Court in N.V. Narendranath Vs. Commissioner of Wealth-tax, Andhra Pradesh, The Supreme Court quoted with

approval the following passage of the Judicial Committee of the Privy Council in Attorney General v. Arunachalam Chettiar 34. ITR (E.D.) 42.

To my mind, it would make a mockery of the undivided family system if this temporary reduction of the Parcenary unit to a single individual were to

convert to what was previously joint property belonging to an undivided family into the separate property of the surviving co-parcener. It was also

held by the Supreme Court in Gowli Buddanna''s Case 60 ITR 292 that the income in such circumstances shall be assessed at the hands of the

surviving coparcener not as his individual income but as the income of a Hindu undivided family. It is, therefore, clear that the second condition for

the application of Section 28(1)(c) is also satisfied in this case.

The learned Counsel for the Assessee made the following submission with regard to the third condition. The gravemen of the charge u/s 28(1)

(c)is a conscious and deliberate concealment of the income or the furnishing of inaccurate particulars. This postulates a guilty mind or mens rea. A

Hindu undivided family is a juristic entity and is incapable of such contumacious conduct. The consciousness of the kartha in the matter of

concealment of the income or the deliberate act of furnishing in accurate particulars by him cannot be attributed to the Hindu undivided family. In

any case, if the kartha dies, the action that could be taken against him for furnishing a false return with concealed income also dies with him and the

Assessee Hindu undivided family is not liable to be proceeded against for the conduct of the previous kartha, u/s 28(1)(c). We are unable to

accept this contention of the learned Counsel.

In law, a Hindu undivided family can acquire own, hold and dispose of property. It can earn income. How an abstraction without any mind is

able to do all these acts ? It does all these acts through the personality of a manager or kartha. The Income Tax Act treats a Hindu undivided

family as an assessable juristic entity apart from the members constituting it. Proceedings for the assessment of its income and recovery of tax could

also be taken against the Hindu undivided family, but for purposes of filing of returns and serving of notices, etc., the kartha acts on behalf of the

Hindu undivided family. He is not an agent or a trustee, but acts in a fiduciary capacity. Under the Hindu law, he is entitled to manage the joint

family properties and represents the family in all transactions The propriety of his past actions cannot be called in question by the other coparceners

on the ground that they are imprudent actions. In such circumstances they could only ask for a partition. Having regard to these settled legal

principles, we do not find any insuperable difficulty in attributing the consciousness of the kartha to the Hindu undivided family which he represents.

In fact, if the consciousness of the kartha cannot be attributed to a Hindu undivided family, neither a lawful act nor an unlawful act could be

imputed to it. Even for an ordinary breach of contract the Hindu undivided family cannot be proceeded with. In this connection, it is useful to refer

to the decision of the House of Lords in Lennards Carrying Co., v. Asiatic Petroleum [1915] A.C. 705 (H.L.) in which Viscount Haldane, L.C.,

with reference to the liability of a company for default of its managing Director said:

My Lords, a corporation is an abstraction. It has no minda of its own any more that it has a body of its own ; its activity and directing will must

consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of

the corporation, the very ego and centre of the personality of the corporation.... If Mr. Leannard was the directing mind of the company, then his

action must, unless a corporation is not to be liable at all, have been an action which was the action of the company itself within the meaning of

Section 502.... It must be upon the true construction of that section in such a case as the present one that the fault or privities is the fault or privities

of somebody who is not merely a servant or agent for whom the company is liable upon the footing Respondent superior, but somebody for whom

the company is liable because his action is the very action of the company itself.

The same principle will have to be applied in the case of a Hindu undivided family also. We are, therefore, of opinion that a Hindu undivided family

as an assessable entity remaining the same, proceedings could be initiated u/s 28(1)(c) in respect of a return submitted by the previous kartha even

after his death. This view is also supported by a decision of this Court in V. K. Nataraja Gounder Vs. Commissioner of Income Tax, Madras, .

The facts in that case were these :

One Kumarasami Gounder was the kartha of a Hindu undivided family till his death on 2nd January 1950. In the return filed by him for the

assessment year 1948-49 it was found that an income of Rs. 72,647 had been deliberately concealed. On the date of discovery of this

concealment, Kumarasami Gourde had died and his son Nataraja Gounder had become the kartha of the Assessee, the Hindu undivided family.

On the question whether the penalty can be imposed on the succeeding kartha it was held that:

In the present case, however, the predecessor kartha had in fact filed a return consciously and deliberately concealing, his income and had laid

himself open to the penal provisions of Section 28(1)(c). The succeeding kartha only represents the unit, viz., the Hindu undivided family in respect

of whose income the preceding had filed the offending return. It follows, therefore, that considering the Hindu undivided family as the person

contemplated in Section 28(1)(c), there is no doubt that all the requirements of Section 28(1)(c) are satisfied.

Since in this judgment the earlier decisions in T.P. Hariram Sait by guardians Parvathi Ammal and Peevammal Vs. The Commr. of Income Tax,

Madras, and Radha Rukmani Ammal v. C.T.I. 31 ITR 704. relied on by the learned Counsel for the Assessee were considered and held not to

deal with the point now in question, it is not necessary forum again to note those facts in this case.

The learned Counsel for the Assessee then placed strong reliance on the decision of the Supreme Court in Kapurchand Shrimal Vs. Tax

Recovery Officer, Hyderabad and Others, that the representative character of the kartha cannot be stretched to his contumacious conduct and that

conduct attributed to the Hindu undivided family. This decision was concerned with the question of dsfault and liability for arrest and detention of

the defaulter. It was held that in the case of a Hindu undivided family the manager is competent to represent the Hindu undivided family by virtue of

his status but on that account he cannot be deemed to be the Assessee when the assessment is made against the Hindu undivided family and

certificate for recovery is issued against the family. It was further held that, in the context in which the expression ''person occurs in sections 276,

276-A and 278, there can be no doubt that it seeks to penalise only these individuals who fail to carry out the duty cast by the specific provisions

of the statute or otherwise responsible for the acts done and, therefore, for the default of the Hindu undivided family in payment of tax the kartha

cannot be arrested and detained in prison. The ratio of this decision, in our view, is that arrest and detention being corporeal punishment unless the

statute in clear words makes a person liable for arrest and detention for the acts of another, no vicarious liability would arise. Far from helping the

Assessee in the present case, this decision of the Supreme Court is against him. It was held therein that a Hindu undivided family is a taxable entity

distinct from the individual members constituting it, that proceedings for assessment and recovery of tax could be taken against the Hindu undivided

family and that if the properties of the family, movable and immovable, are to be attached, proceedings may of resorted against the Hindu

undivided family and the0 manager represents the family in the proceedings before the Tax Recovery Officer. It is only on the ground that the

statute only makes the Assessee a defaulter for non-payment of tax it was held that the liability to arrest and detention on failure to pay tax due is

incurred only by the Assessee and not by the manager or kartha. It may be mentioned that in the present case, proceedings u/s 28(1)(c) are taken

only against the Hindu undivided family, which is an assessable entity and which shall be deemed to have committed concealment of the income

and not against the kartha personally.

The decision in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, referred to at the Bar, related to the onus of proof.

It was held that the proceedings u/s 28 being penal in character, the burden is on the Department to establish that the receipt of the amount in

dispute constitutes income of the Assessee. It was held to be penal in the sense that its consequences are intended to be an effective deterrent

which will put a stop to the practices which the Legislature considered to be against public interest. It may be that the proceeding u/s 28 is penal in

nature but it cannot be said to be a criminal proceeding. In the present case, there is no dispute about the concealment of income nor about the

onus or quantum of evidence necessary for that finding. We are, therefore, of opinion that the 3rd condition referred to above is also satisfied in

this case.

Before parting with the case, we may also refer to one other aspsct. In the appeal before the Appellate Assistant Commissioner a gainst the

order u/s 28(1)(c) of the Act, the Assessee raised a new contention that the abkari business conducted in Puduk-kottai was the business of one

Baluswami Naidu, a divided brother of Govindaswami Naidu, the then kartha. This contention was rejected as an after thought and also on the

ground that it had not been proved. This conduct in putting forward a false new case at the appellate stage is taken as a ground by the Tribunal in

proof of the Assessee''s guilt in the matter. The learned Counsel for the Department did not rely on this ground and he could not have relied on this

also because Section 28 has not been inveked against the Assessee for the in-accurate information furnished before the appellate Assistant

Commissioner in the appeal against the order u/s 28(1)(c).

For the foregoing reasons, we answer the reference in the affirmative and against the Assessee with Cost.