The Commissioner of Income Tax vs K.M.N.N. Swaminathan Chettiar

Patanjali Sastri, J.—This reference by the Income Tax Appellate Tribunal, Madras Bench, u/s 66 (I) of the Indian Income Tax Act, 1922,

arises out of the assessment for the year 1939-40 made u/s 34 on one K. M.N.N. Swaminathan Chettiar, Karaikudi (hereinafter referred to as the

asssessee) who was the karta of his joint family till the 21st January, 1940, when there was a partition of the family property among the members.

For the year 1939-40 the assessee was separately assessed as the karta of the family and in his individual capacity in respect of the income of the

family and his own private income respectively, but this reference concerns only the assessment of the family income. Before the Income Tax

Officer the assessee contended that the income which had accrued to the family without British India in 1938-39 should not be included in the

assessment as he, and therefore the family, was ""not ordinarily resident"". The contention, though rejected by the Income Tax Officer, was upheld

on appeal by the Appellate Assistant Commissioner as a result of which a fresh assessment was made on the 23rd August, 1940, excluding the

foreign income

In the assessment proceedings for the succeeding year 1940-41 the assessee put forward the claim that a partition having taken place among the

members of the family, no assessment on the family as such should be made for that year. This claim was rejected by the Income Tax Officer on

the 23rd December, 1941, but the assessee again succeeded before the Appellate Assistant Commissioner who by his order dated the 17th

August, 1942, accepted the partition put forward and directed an assessment to be made on that basis.

Meanwhile, the Income Tax Officer, having come into possession of materials showing that the family was ""ordinarily resident"" in British India in

the year 1938-39, issued a notice dated the 6th July, 1942, u/s 34 of the Act addressed to ""K. M.N.N. Swaminathan Chettiar, Sembanur "" stating

inter alia that ""your income"" for the year ending 31st March, 1939, had been both underassessed and assessed at too low a rate, and that it was

therefore proposed to re-assess such income. The notice accordingly required the addressee to deliver "" a return in the attached form of your total

income and income assessable for the said year ending 31st March, 1940."" In compliance with that notice which the assessee understood as

relating to the family income, he made a return of the same income as before describing his ""status"" as ""Hindu undivided family not ordinarily

resident,"" and signing as "" K.M.N.N. Swaminathan Chettiar, Manager, H.U.F."" (i.e., Hindu undivided family). This was on the 29th August, 1942.

It is important to note that, although he had by that time obtained an order from the Appellate Assistant Commissioner recording the partition in

connection with the assessment proceedings for 1940-41, he raised no contention that by reason of that partition, the joint family had ceased to

exist and could no longer be re-assessed for the year 1939-40 in respect of any part of its income in the previous year whether such income had

escaped assessment or not. On the contrary, he made a return of the family income of that year describing himself as "" Manager, Hindu Undivided

Family "" and repeating the previous claim that the family was not "" ordinarily resident."" The Income Tax Officer, however, rejected this claim and

purported to make a supplemental assessment on the family "" as resident and ordinarily resident,"" computing the tax payable at Rs. 13,466 and

directing the sum to be ""collected by adjustment of the refund due to the assessee for 1941-42 assessment.

From this order which was made on the 21st October, 1942, the assessee preferred an appeal to the Appellate Assistant Commissioner, and in

his memorandum of grounds for the first time he raised the contention which has given rise to the present Reference, viz.:

The assessment supplementally made for the year 1939-40 on the ex-family which ceased to exist on 21st January, 1940, is not legally sustainable.

When the notice u/s 34 was served on 8th July, 1942, there was no family in existence.

The Appellate Assistant Commissioner disallowed the contention. He recognised that the family had become divided ""with effect from 8th Thai

Pramathi (21st January, 1940) according to the Additional Appellate Assistant Commissioner''s order in, I.R.A. No. 737 of 1941-42 dated 17th

August, 1942,"" and that the proceedings u/s 34 were initiated "" when, of course, the family had ceased to exist."" But he held that the provisions of

Section 25-A were specially intended for making an assessment on a family after it had ceased to exist. He accordingly dismissed the appeal.

The assessee appealed to the Income Tax Appellate Tribunal, which, however, allowed the appeal, holding that Section 25-A was inapplicable

to the case and also that no valid notice u/s 34 was served on the Hindu undivided family as the notice served on the assessee did not indicate

whether it was proposed to assess him as karta of the family or in his individual capacity.

Thereupon the Commissioner of Income Tax, Madras, applied to the Appellate Tribunal u/s 66(I) to refer the questions of law arising out of its

order to this Court, and the Tribunal has accordingly referred the following question for our decision:

Whether in the circumstances of the case, a notice for re-assessment of a Hindu undivided family u/s 34 of the Income Tax Act is valid on a

member of the family, who was the karta, after the family had partitioned and disrupted, particularly when the said member was also taxed

individually for the relevant assessment year?

It was not seriously disputed that the question thus formulated was intended to raise before us both the points decided by the Tribunal adversely

to the Commissioner, viz., (I) whether Section 25-A is applicable to the assessment made u/s 34 in respect of the income received by the

undivided family in 1938-39 after the disruption of such family by the partition of the 21st January, 1940, and (2) whether the notice of the 6th

July, 1942, issued to the assessee without indicating in what capacity he was to be assessed u/s 34 could be regarded, in the circumstances of the

case, as a valid notice to the family under that section.

Before discussing these questions, it will be convenient to set out the terms of Section 25-A and Section 34 so far as material here ;

Section 25-A :-"" Where, at, the time of making an assessment u/s 23, it is claimed by 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 thereinto

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 (I) of Section 14, 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 such family shall be deemed, for the

purposes of this Act, to continue to be a Hindu undivided family.

Section 34. (I) If in consequence of definite information which has come into his possession he Income Tax Officer discovers that income, profits

or gains chargeable to Income Tax have escaped assessment in any year, or have been under-assessed, or have been assessed at too low a rate,

or have been the subject of excessive relief under this Act, the Income Tax Officer may, in any case in which he has reason to believe that the

assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof at any time within eight years, and in

any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the

case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may he included in a notice under Sub-

section (2) of Section 22 and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act shall, so far as may

be, apply accordingly as if the notice were a notice issued under that sub-section:

Provided that the tax shall be charged at the rate at which it would have been charged had the income profits or gains not escaped assessment or

full assessment, as the case may be.

As pointed out by the Privy Council in AIR 1942 57 (Privy Council) Section 25-A is directed to the difficulty which arose when an undivided

family had received income in the year of account but was no longer in existence as such at the time of assessment, and it solved the difficulty by

providing that, if the family property had been partitioned among the members, the assessment should be made notwithstanding Section 14(I) on

the individual or group in respect of his or its share of the income received by the family as if no partition had been made, though all the members

are to be jointly or severally liable for the whole tax. If, on the other hand, there was no partition of the family property, the family should be

deemed to continue for purposes of assessment notwithstanding that it has ceased to exist by a division of status among the coparceners. Thus, in

the normal case of an assessment of the income made by a Hindu undivided family in the year of account the disruption of the family before such

income falls to be assessed in the next year becomes immaterial, and the assessment has to be made as if the family is still in existence. But what is

the position when, several years after the family had come to an end, any portion of its income is found to have escaped assessment and such

income is sought to be assessed under the special provisions of Section 34? Does the fiction of continued existence of the family imported by

Section 25-A avail the Income Tax authorities in making such supplemental assessment ? I am of opinion that the concluding words of Section 34,

Sub-section (I), viz., "" the provisions of this Act shall so far as may be, apply accordingly as if the notice were a notice under that sub-section,"" are

apt to attract the provisions of Section 25-A to assessments made u/s 34.

Mr. Viswanatha Aiyar argued on behalf of the assessee that Section 25-A could have no application to this case as it contemplated only cases

where "" at the time of making an assessment u/s 23 "" a claim is put forward that a partition has taken place among the members of such family,

whereas not only was the assessment now in question made u/s 34, but when the family was originally assessed u/s 23 on the 30th November,

1939, no claim was made or indeed could be made that a partition had taken place, as the partition in the family was only in January, 1940. This

contention found favour with the Income Tax Appellate Tribunal which observed:

For the year of assessment in question, i.e., 1939-40 it is nobody''s case that any claim u/s 25-A was made by any member of the Hindu undivided

family. That being so we do not think that Section 25-A has any application to this case.

On the other hand, Mr. Rama Rao Saheb for the Commissioner suggested that Sub-section (3) of Section 25-A could operate independently

of Sub-sections (I) and (2) and as the order of the Appellate Assistant Commissioner accepting the partition was passed only on the 17th August,

1942, the family which had till then been assessed as undivided must be deemed to have continued to be undivided on the 6th July, 1942, when the

notice u/s 34 was issued to the assessee, so that the assessment made on that basis was in order. We are unable to agree with either of these views

of the matter. The contention on behalf of the Commissioner assumes that the words ""Where such an order has not been passed in respect of a

Hindu undivided family hitherto assessed as undivided"" cover every case of a joint family sought to be assessed in respect of which the Income Tax

authorities have not till then recorded an order that a partition has taken place, and that until the date of such an order all such families should be

dealt with as undivided. We do not think that this is a correct view of Sub-section (3). As pointed out by their Lordships in AIR 1942 57 (Privy

Council) Section 25-A relates only to Hindu undivided families which have been disrupted, and the opening words of Sub-section (3) quoted

above refer to cases where a claim that a partition had taken place has been made under Sub-section (I) and such claim has been rejected by the

Income Tax Officer. Thus Sub-section (3) is complementary to Sub-section (2) and both deal with cases falling under Sub-section (I). Nor is it

correct to say that the family should be deemed to continue undivided till the date of the Income Tax Officer''s order under the section. Where an

order is made accepting the partition alleged by the assessee the family must be regarded as having become disrupted on the date of partition as

put forward by the assessee. In the present case, therefore, when the notice u/s 34 was issued to the assessee on the 6th July, 1942, the family

must be taken to have ceased to exist though the partition which was put forward as having taken place on the 21st January, 1940, was accepted

only on the 17th August, 1942.

This is, however, not to say that the assessee''s contention is correct. While it is true that Sub-section (3) of Section 25-A should be read with

Sub-sections (I) and (2), it does not follow that the section is rendered inapplicable, either because of its opening words referring to an assessment

u/s 23, or because no claim as to a partition having taken place was put forward at the time of the original assessment on the family for 1939-40,

to the assessment now made u/s 34. By virtue of the concluding words of Sub-section (1) of the latter section making all the provisions of the Act,

so far as may be, applicable to supplementary assessments under that section these assessments also have to be made under and in accordance

with Section 23. In the course of such an assessment proceeding in the present case, a claim that a partition had taken place was put forward,

though, for the first time before the Appellate Assistant Commissioner who, instead of making a further enquiry into the matter accepted and acted

upon the order of the 17th August, 1942, recording the partition in the assessment proceedings for 1940-41. The Appellate Assistant

Commissioner in his order dated 11th February, 1943, has made it quite clear that he sustained the assessment under Sub-section (2) of Section

25-A read with Section 34 on the footing that the family had been disrupted on the 21st January, 1940. His view of the position is, in my opinion,

correct.

It was said that the Income Tax Officer did not make the assessment in accordance with Sub-section (2) of Section 25-A as he did not make

a separate assessment on the various members of the family as contemplated in that sub-section, but merely assessed the family as a whole. But

this was because the assessee did not put forward before that Officer the claim that there had been a partition in the family. When such a claim was

put forward for the first time in the appeal, the Appellate Assistant Commissioner sustained the assessment under Sub-section (2) of Section 25-A

without remanding the case to the Income Tax Officer for making a fresh assessment, because, presumably, it would make no difference in

practice in the peculiar circumstances of this case whether the assessment was made on the family as an entity through its karta or whether it.was

made on the individual members or groups on the footing of its previous disruption; for even an assessment on the latter footing has to be made ""as

if no partition had taken place,"" and although Sub-section (2) provides that the assessment should be made on the various members or groups of

members it holds all the members jointly and severally liable for the whole tax so that any one of them could be served with a notice u/s 34 as such

notice is required to be served on "" the person liable to pay the tax."" Thus even if the Income Tax Officer had in the first instance proceeded under

Sub-section (2) of Section 25-A read with Section 34 the result would practically have been the same, more especially as no demand notices for

payment of the tax had to be issued in this case, the additional tax imposed having been directed to be adjusted towards the refund due to the

family in connection with 1941-42 assessment.

The assessee''s next objection regarding the validity of the notice dated the 6th July, 1942, is equally untenable. It was no doubt addressed, as

already stated, to the assessee without any indication as to whether it was his personal assessment or the assessment made on him as the Karta of

the family for the year 1939-40 that was proposed to be reopened; but he understood the notice as calling upon him to make a fresh return only in

respect of the family income and submitted a return of such income as the Karta of the family. He made no complaint, until the matter reached the

Income Tax Appellate Tribunal, as to any irregularity in the issue of the notice. As has been already stated, even on the footing that the family had

become disrupted in January, 1940, the service of notice u/s 34 on the assessee was perfectly in order as he was a "" person liable to pay "" the

whole of the tax imposed under the supplementary assessment. In such circumstances, I see no substance in the objection that the notice of the 6th

July, 1942, was not a valid notice u/s 34.

Even assuming that the notice did not give the correct particulars as to the person or income sought to be assessed, the irregularity must, in the

circumstances of this case, be deemed to have been waived by the assessee. In a similar case in Gopaldas Purushotamdas v. Commissioner of

Income Tax ILR 1940 All. 841 where the assessee was served with a notice u/s 22(2) of the Act which did not specify in what capacity he was

called upon to make a return but he made a return as the Manager of the family without asking for an elucidation from the Income Tax authorities,

it was held that the assessee could not afterwards object to the legality of the notice. The Court observed:

The contention of the assessee is that he did not know exactly as to which capacity of his was under investigation and therefore the notice was

illegal. If the assessee was in doubt he might well have asked for elucidation from the Income Tax authorities.... It is not possible therefore to hold

that the notice issued by the Department was invalid or illegal.

See also Maharajadhiraj of Patiala v. The Commissioner of Income Tax (Central) Bombay ILR 1943 Bom. 224 and Tarak Nath, Bagchi v.

Commissioner of Income Tax, Bengal (1946) ITR 319.

For the reasons indicated, the answer to the question referred to us should be in the affirmative. The assessee will pay the costs of the

Commissioner, Rs. 250.

Frederick William Gentle, C.J.

I agree and have nothing to add.