Commissioner of Income Tax vs Suresh Gokuldas

Veeraswami, J.—The question raised by this reference is covered by S. A. Raju Chettiar and Others Vs. Collector of Madras and Another, and the order in Tax Case No. 13 of 1965 both of which are against the revenue. But learned counsel for the revenue invited us to re-consider the position on the only ground that in neither of them Lakshminarain Bhadani Vs. Commr. of Income Tax, Bihar and Orissa, had been referred to.

We shall presently show that Lakshminarain Bhadani v. Commissioner of Income Tax makes no difference whatever to the conclusion arrived at on the legal position in Tax Case No. 13 of 1965.

The reference relates to the assessment year 1955-56 for which the assessee, as a Hindu undivided family, of which the karta was one Gokuldas Thulsidas, was charged to tax. He died on April 19, 1957. He had filed the return for the year on April 2, 1957, and the assessment was completed on February 19, 1958, with Suresh Gokuldas succeeding as the karta. A sum of Rs. 64,000 was added to the income returned and the attempt of the assessee in appeals met with no success. Thereafter, in proceedings u/s 28 culminating in an order dated March 30, 1961, a penalty of Rs. 50,000 was levied on the family. The Income Tax Officer rejected the claim of the assessee that a partition had taken place on November 9, 1958, in the family. The Appellate Assistant Commissioner, however, differed from him and held that the partition of that date was genuine and had taken place. The department's appeal having failed, at the instance of the Commissioner, the question referred to us is :

Whether, on the facts and in the circumstances of the case, the levy of penalty u/s 28(1)(c) was valid in law ?

In view of the fact that our order in Tax Case No. 13 of 1965, P.S. Kandaswamy Mudaliar Vs. Commissioner of Income Tax, has in detail considered the legal position, it will be unnecessary to again cover the same ground. For the reasons given in that case as also in 5. A. Raja Chettiar v. Collector of Madras, we are still of the view that, in order to attract penalty proceedings u/s 28, a Hindu undivided family should exist not only at their initiation but also at the point of levy. The position is no doubt different in the case of assessment or reassessment. Where the purpose is to tax the income earned by the Hindu undivided family, the charge attaches itself to it the moment the income has been earned or has accrued and it is only a question of quantification thereafter in accordance with the prescribed procedure. Be it assessment or reassessment, the power therefore is always u/s 23. In the case of a Hindu undivided family being partitioned between the filing of return and assessment of its income in a particular year or between the return and reassessment, Section 25A provides for the incidence of tax, making it at the same time clear that the quantification is in exerise of the power to charge the income u/s 23. In any contingency visualised by Section 25A the integrity, of the Hindu undivided family is either taken for granted or by a fiction preserved, but only after quantification of the tax the income of the Hindu undivided family has been charged to, the proportionate liability therefore is added to the individual assessment of each divided member, but the revenue being taken care of by Section 25A that notwithstanding, that, a joint and several liability of the divided members being insisted on.

Section 25 also, on a similar reasoning, stands on a different footing and does not help the revenue in the instant reference. As pointed out by C.A.

Abraham, Uppoottil, Kottayam Vs. The Income Tax Officer, Kottayam and Another, Section 25A and Section 44 are not in pari materia and particularly the vital difference between them is that the entire gamut of machinery of assessment in Part IV of the Act is made available by the compendious use of the word "assessment" in Section 44 which would be made u/s 23 while that is not the case when we are on Section 28. The penalty simply does not attach itself to the escaped income the moment it is discovered and the levy of penalty is not obviously u/s 23 but by force of the provisions of Section 28 themselves and the order made thereunder. It follows, therefore, that the levy of penalty is not comprehended within the ambit of the word "assessment" employed by even Section 44.

There remains, therefore, the contention for the revenue that Lakshmi-narain Bhadaniv. Commissioner of income tax2 would call for a re-consideration of the legal position as we have endeavoured to put it just now. We do not think that the contention is made out. That case was concerned with reassessment and, as we have already stated, u/s 25A no difficulty could arise. In fact the point that was decided by it was a very limited one. It was taken for granted, as we understand the judgment, that the power, to reassess the disrupted Hindu undivided family was there u/s 25A. But, on that assumption, to arguments addressed by counsel, what the court, decided was that notice for purposes of Section 34 should go out to every divided member and not merely to the erstwhile karta. This proposition was repelled by the Supreme Court by pointing out that the position was as if the Income Tax Officer was proceeding to assess the income of the Hindu undivided family as in the relevant year during which the family existed and earned income. Apparently counsel in that case was reassured about the propriety of the assumption made there because of COMMISSIONER OF Income Tax, MADRAS Vs. K. M. N. N. SWAMINATHAN CHETTIAR., . We are of the view, therefore that Lakshminarain Bhadani v. Commissioner of Income Tax does not really touch the point under consideration.

It should be obvious by now that the reference should be answered against the revenue. On that view, the other aspect arising in the reference need not be answered. The assessee is entitled to its costs. Counsel's, fee Rs. 250.