Ve. A. Vairavan Chettiar vs Commissioner of Income Tax

Ramanujam, J.—One Annamalai Chettiar and his son, Vairavan Chettiar, constituted a Hindu undivided family. There was a partition of the

joint family properties on March 11, 1940. This was confirmed by deed of partition dated March 10, 1945. In the partition, a sum of Rs. 1,62,979

and a bungalow at Singapore were set apart for meeting the marriage and seermurai expenses of the female members of the family. These assets

and the income therefrom were credited to an account called ""Oor Pothuchelavu Fund Account"". Originally, Annamalai Chettiar, the father, was in

charge of the said fund. But, after his death, his son, Vairavan Chettiar, became the trustee of the fund. For the assessment years 1959-60, 1960-

61 and 1961-62, the income from the said trust fund in the hands of Vairavan Chettiar was assessed, taking the status as an association of

persons, at the ordinary rate of tax. Later, while making the assessment for the subsequent years, the Income Tax Officer became aware of the fact

that the said fund constituted a trust in favour of an indeterminate and fluctuating body of persons and, therefore, attracted the proviso to Section

41(1) of the Indian Income Tax Act of 1922 (hereafter referred to as the ""old Act""). The Income Tax Officer was of the view that, by the omission

to apply the provisions of Section 41(1) of the old Act for the assessment years in question, the income chargeable to tax has been taxed at a

lower rate and that the correct rate of tax leviable in respect of all the three years will be the maximum rate on the total income received in the

relevant assessment years. In that view, he proposed to reassess the income for the said three years by issuing notices u/s 148 of the Income Tax

Act, proposing to initiate proceedings u/s 147(b) of the Act of 1961 (hereafter referred to as the ""new Act""). After hearing the objections of the

assessee, he revised the assessment for the three years u/s 147(b) of the new Act and brought to charge the income for the various years at the

maximum rate as provided in the proviso to Section 41(1) of the old Act.

The validity of the revised assessment was challenged by the assessee by filing an appeal before the Appellate Assistant Commissioner. Before

the Appellate Assistant Commissioner, two questions were urged by the assessee that the initiation of proceedings by the Income Tax Officer u/s

147(b) of the new Act is without jurisdiction and that, in any event, the proviso to Section 41(1) of the old Act cannot be applied for the income in

the assessment years in question. While considering the first objection, the Appellate Assistant Commissioner specifically found that the Income

Tax Officer became aware of the setting apart of the said assets as a trust at the time of the partition for the benefit of an indeterminate body of

persons only after the original assessment has been made and that he had not actually decided the question of the applicability of Section 41(1) of

the old Act at the stage of the assessment. Therefore, he upheld the jurisdiction of the Income Tax Officer to reopen the assessment under, Section

147(b) of the new Act. On the question of the applicability of the proviso to Section 41(1) of the old Act, the Appellate Assistant Commissioner

held that that fund having been set apart for the marriage expenses of the female members of the family on ceremonial occasions and their shares

being indeterminate and unknown, the beneficiaries constitute an indeterminate or fluctuating body of persons, and the proviso to Section 41(1) of

the old Act straightaway applied to the facts of the case. In that view, even on the merits, the revised assessments were upheld.

On a further appeal by the assessee, the Tribunal also took the same view. According to the Tribunal, Section 147(b) of the new Act has rightly

been invoked by the Income Tax Officer in the circumstances of the case, as he had omitted to consider and apply to the facts of the case the

relevant statutory provision and that it is open to him, when the omission is noticed by him from the records, to proceed under that section for

assessing the income at the appropriate rate of tax. On the merits, the Tribunal had expressed the view that as the corpus is being administered by

the assessee as a trustee and the interests of the beneficiaries are indeterminate and unknown, the reassessment has rightly been made by applying

the maximum rate under the proviso to Section 41(1) of the old Act. At the instance of the assessee, the following questions have been referred for

our decision u/s 256(1) of the Income Tax Act:

(1) Whether, on the facts and in the circumstances of the case, the reopening of the original assessments for the assessment years 1959-60, 1960-

61 and 1961-62 u/s 147(b) of the Income Tax Act, 1961, was valid in law ? and

(2) Whether, on the facts and in the circumstances of the case, the assessment at the maximum rate of the income from the trust fund for the

assessment years 1959-60, 1960-61 and 1961-62 under the provisions of Section 41(1) of the Indian Income Tax Act, 1922, was valid in law ?

The learned counsel for the assessee reiterates the same two contentions as were put forward before the Tribunal. One relates to the jurisdiction

of the Income Tax Officer to reopen the assessment u/s 147(b) of the new Act and the other relates to the applicability of Section 41(1) of the old

Act to the facts of this case. On the question of jurisdiction, we are of the view that Section 147(b) of the new Act is clearly applicable to the facts

of this case. It is not as if the Income Tax Officer considered the applicability of Section 41(1) of the old Act at the stage of the original

assessment. From the records it appears to be clear that he did not advert his mind to the provisions of Section 41 at all. As a matter of fact, from

the records, it is clear that he was not aware at all of the existence of the trust in favour of an indeterminate body of persons. He merely proceeded

to assess the income from the fund in the hands of the assessee at the ordinary rate. While he has not considered the applicability of Section 41(1)

of the old Act to the facts, it cannot be said that he has purported to change his opinion on the applicability of Section 41(1) by making a revised

assessment. It cannot be disputed, and it is clear from the findings given by the Appellate Assistant Commissioner as well as by the Tribunal, that

the assessing authority became aware or informed himself of the existence of the trust in favour of an indeterminate body only after the assessment,

and that the applicability of Section 41 came up for consideration by him only in the subsequent assessment years. Though the learned counsel for

the assessee may be right in his general submission that the Income Tax Officer cannot change his opinion merely in the guise of reopening an

assessment, in this case, we are not inclined to hold that the Income Tax Officer has merely attempted to change his opinion by making the revised

assessment. We have to, therefore, answer the first question in the affirmative and against the assessee. On the second question, we are clearly of

the opinion that the proviso to Section 41(1) of the old Act is quite applicable to the facts of this case. It is not in dispute that the shares of the

various beneficiaries of the trust are indeterminate and unknown and, as a matter of fact, the beneficiaries themselves are a fluctuating body of

persons. We have to, therefore, agree with the view taken by the Tribunal on this aspect. The second question is, therefore, also answered in the

affirmative and against the assessee. The revenue will have its costs. Counsel''s fee Rs. 250.