G. Lakshminarayana vs Income Tax Officer

Upendralal Waghray, J.—These four writ petitions raise a common question and were heard as a batch. The controversy in all these cases relates to the assessment proceedings under the income tax Act, 1961 (''the Act'') for the assessment year 1979-80. All the petitioners had filed their respective returns for the said assessment year in which they had claimed that there was a partial partition of the family and had requested for an order u/s 171 of the Act also. It is to be noticed that the partial partitions in all these cases are said to have taken place between 1-1-1979 and 31-3-1979 during the relevant previous year for the assessment year 1979-80. In the case of two petitioners, after enquiry an order u/s 171 was also passed and assessment completed, while in the case of two others the assessment was yet to be completed. However, after coming into force of the Finance Act of 1980, the ITO decided to ignore the order passed u/s 171 and also to ignore the partial partition in these cases. The prayer in these writ petitions is for a declaration that the amendment inserting sub-section (9) to section 171 by the Finance Act, 1980, giving retrospective effect from 1-1-1979 is void and illegal.

For all these cases, single counter-affidavits have been filed on behalf of the respondents, i.e., by the ITO (Judicial), Commissioner, Hyderabad, and Under Secretary, Ministry of Finance, Government of India.

According to section 171, where a Hindu family hitherto assessed as undivided shall be deemed for the purposes of the Act to continue to be a HUF except where and insofar as a finding of partition has been given under that section in respect of the HUF by the ITO. It also provides for various incidental matters and applies not only to cases of total partition but of partial partitions.

By the Finance Act, 1980, a new sub-section (9) was introduced to section 171, which reads as follows:

Assessment after partition of a Hindu undivided family. -

(1) to (8) ******

(9) Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of December, 1978, among the members of a Hindu undivided family hitherto assessed as undivided,-

(a) no claim that such partial partition has taken place shall be inquired into under sub-section (2) and no finding shall be recorded under sub-section (3) that such partial partition had taken place and any finding recorded under sub-section (3) to that effect whether before or after the 18th day of June, 1980, being the date of introduction of the Finance (No. 2) Bill, 1980, shall be null and void;

(b) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place;

(c) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition;

(d) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition,

and the provisions of this Act shall apply accordingly.

According to the counsel for the petitioners, 31-12-1978 mentioned in the opening words of the newly introduced sub-section (9) is arbitrary and because of the aforesaid provision the petitioners are adversely affected. According to him, there was a partial partition between 1-1-1979 and 31-3-1979 during the previous year relevant to the assessment year 1979-80 and they filed returns stating this fact. In two cases, after enquiry, orders u/s 171 as well as the assessment orders were also passed. But, because of the aforesaid amendment, the ITO is ignoring the earlier order passed by him u/s 171 or to recognise the partial partition. The counsel for the petitioners has referred to several cases in support of his contention that the choosing of the date, i.e., 31-12-1978 is arbitrary, and the retrospective effect in sub-section affects the rights of the petitioners.

The counsel for the revenue has contended that the amendment was within the legislative competence of the Parliament and that there is no arbitrariness in choosing the date or the retrospective effect given which was done to curb the creation of multiple HUFs and as a measure for countering tax avoidance. After some debate and going through the relevant provisions of the Finance Act, 1980, Notes on clauses and memo explaining the various provisions in the Bill, etc., we do not consider it necessary to go into the question of constitutional validity of sub-section (9), as we are of the view that the said provision does not apply to the assessment year 1979-80 with which the petitioners'' cases are concerned.

Section 4(1) of the Act which provides for the basis of the charge reads as follows:

Charge of income tax. -(1) Where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person:

Provided that where by virtue of any provision of this Act income tax is to be charged in respect of the income of a period other than the previous year, income tax shall be charged accordingly.

The Finance Act, 1980 received the assent of the President on 21-8-1980 and was published thereafter. Its preamble says, that it is an Act to give effect to the financial proposals of the Central Government for the financial year 1980-81. Section 1(2) reads as follows:

Short title and commencement.- -

(1) ******

(2) Save as otherwise provided in this Act, sections 2 to 43 and sections 52 and 53 shall be deemed to have come into force on the 1st day of April, 1980.

By section 28(a) of the Act, sub-section (9) is introduced in section 171. In view of section 1(2) this amendment has been given retrospective effect from 1-4-1980. The notes on clauses in the Bill for the aforesaid Act states as follows:

Clause 28 seeks to insert a new sub-section (9) in section 171 of the income tax Act.

This amendment will take effect from 1st April, 1980, and will accordingly apply in relation to the assessment year 1980-81, and subsequent years.

Further, in the memo explaining the provisions annexed to the said Bill, paragraphs 44 to 47 deal with clause 28. Para 47 which is relevant reads as follows:

This amendment will take effect from 1st April, 1980, and will accordingly apply in relation to the assessment year 1980-81, and subsequent years.

After the Finance Act was passed the CBDT issued Circular No. 281 dated 22-9-1980-see Taxmann''s Direct Taxes Circulars ,Vol. 2, 1985 edn., p. 828 containing explanatory notes on the provisions relating to direct taxes in the Finance Act, 1980. Paras 31.1 to 31.4 deal with this amendment. Para 31.4 reads as follows:

31.4 This amendment has come into force with effect from 1st April, 1980 and is accordingly applicable in relation to the assessment year 1980-81 and subsequent years.

The aforesaid material clearly indicates that sub-section (9) is deemed to be on the statute book from 1-4-1980 and is applicable for the assessment year 1980-81 onwards.

The ''assessment year'' is defined in section 2(9) of the Act and it means the period of twelve months commencing on the 1st day of April every year. In view of section 3 of the Act, ''previous year'' for the assessment year 1980-81 will be the preceding financial year, i.e., 1-4-1979, to 31-3-1980 and in cases where the assessee was being previously assessed to income tax and maintains accounts the period of twelve months ending within the said financial year, i.e., any period of 12 months ending with 2-4-1979 to 31-3-1980. By section 171, sub-section (9), is introduced from 1-4-1980 and in view of section 4 will apply to the assessment years commencing after 1-4-1980. The assessment proceedings for earlier assessment years, that is, 1979-80 and prior years will have to be completed without reference to the said amendment. This is also evident from the notes on clauses to the Bill, the explanatory memo as well as the circular issued by the CBDT after the amendment was enforced. The date 31-12-1978 for reopening partial partitions is only for those who claimed such partial partition during the assessment year 1980-81. Several returns in respect of the assessment year 1980-81 would not have been filed by the date of the introduction of the Bill, viz., 18-6-1980 and to avoid fabrication of partial partitions, after the introduction of the Bill and before the filing of returns an anterior date, i.e., 31-12-1978 has been adopted and provision made to ignore earlier partial partitions. For the earlier assessment years there is no question of fabrication due to the knowledge of the amending Bill because the returns must have been filed an year earlier.

The date 31-12-1978 may create classification among the assessees for the assessment year 1980-81, but, we are not concerned with the same in this case, as we are concerned with the question whether the amendment applies to the assessment year 1979-80. In view of the position that the amendment does not apply to the assessment year 1979-80, the ITO is not justified in invoking sub-section (9) of section 171 for ignoring the partial partition claimed by the petitioners during the assessment year 1978-79 on the ground that it was effected after 31-12-1978, viz., between 1-1-1979 to 31-3-1979 which also happen to be a part of the previous year of the assessee for the assessment year 1979-80. As the said provision does not apply to this assessment year, the ITO cannot apply the amended provision. The provisions of the Act as well as the explanatory statement in the Bill and the circular of the CBDT clearly show that sub-section (9) is to be applied only in respect of the assessment year 1980-81 onwards. In view of the aforesaid position, there shall be a direction to the ITO not to apply the provisions of sub-section (9) of section 171 to the proceedings of the petitioners for the assessment year 1979-80, and to complete their cases without reference to it. The writ petitions are, accordingly, allowed to the extent indicated above. There shall be no orders as to costs.