M/S. Gauri Shankar, Chandrabhan Vs.
C.I.T., U.P., Lucknow  INSC 134 (3 May 1976)
SINGH, JASWANT SINGH, JASWANT GUPTA, A.C.
CITATION: 1976 AIR 1678 1976 SCR 505 1976 SCC
Assessment jurisdiction of Income Tax
Officers- Jurisdiction to continue to assess as undivided, despite partition
under personal law, a Hindu family which has hitherto been assessed in that
status-Interpretation and scope of 5. 25A(3) read with s. 25A(1) of the Income
Tax Act-Penalty imposed under s. 28(1)(c) of the Act for concealment of income
by the Hindu Undivided Family prior to the actual date of recording of an order
accepting the disruption of the Hindu Undivided Family is proper.
In response to a show cause notice dated
March 15, 1957, under s. 28(1)(c) of the Income Tax Act, before imposing a
penalty for deliberate concealment of its income, the appellant, through its
authorised representative, voluntarily agreed to a slum of Rs. 15,000/- being
treated as income of Hindu Undivided Family. The Income Tax officer, by his
order dated March 20,1958, added a sum of Rs. 68,550/- to the income of the
appellant and imposed on it a penalty of Rs. 26,000/- which on appeal was
reduced to Rs. 15,000/-. Meanwhile, on March 19, 1957, the appellant filed an
application under s. 25A of the Act for an order recording partition of joint
family property in definite portions from June 22, 1956, claiming that date to
be the date of partition. The Income Tax officer, after due enquiries, accepted
the disruption of the Hindu Undivided Family as claimed by his order dated
March 26, 1962. This led the appellant to contend that, in view of' the orders
dated March 26, 1962, of the Income Tax officer, the imposition of the penalty
by him on March 20, 1958 was bad in law and could not be sustained. The
Tribunal up hold the contentions of the appellant resulting in a reference
under s. 66(1) of the Act to the High Court of Allahabad (Lucknow Bench), which
reversed the decision or the Tribunal.
However, the High Court granted a certificate
of fitness for appeal to this Court.
Dismissing the appeals the Court,
HELD: Sub-section (3) of s. 25A of the Income
Tax Act embodies a legal fiction according to which a Hindu family which has
been previously assessed as "undivided" is to be continued to be
treated as "undivided" till the passing of the order under sub-s. (1)
of s. 25A. So long as no order under s. 25(A)(1) 1 of the Act is recorded, the
jurisdiction of the Income Tax officer to continue to assess as undivided despite
a partition under personal law, a Hindu family which has hitherto been assessed
in that status, remain unaffected. [508G-H] Additional Income Tax Officer,
Quddapah v. A. Thimmayya v. Commissioner of Income Tax, Gujrat (1967) 63 I.T.R.
Commissioner of Income Tax v. Sanchar Sah
Bhim Sah (1957) 27 I.T.R. 307. S. A. Raju Chattiar & Ors. v. Collector of
Madras & Anr. (1956) 29 I.T.R. 241; Mahankali Subba Rao Mahankali Nageswara
Rao & Anr. v, Commissioner of income Tax. Hyderabad (1957) 31 I.T.R. 867
and Commissioner of Income Tax, Punjab v. Mothu Ram Prem Chand (1967) 66 I.T.R.
638, not applicable
HELD FURTHER: In the instant case, there was
not a whisper of the application under s. 25A (1) of the Act by the appellant
on March 15, 1957, when the penalty proceedings were initiated against it. Even
on March 20, 1958. when the penalty was imposed, there was no order under s.
25A(l) of the Act lt was only on March 26, 1962, that the partition was
recognised and order 506 under S. 27A(1) of the Act was passed. There was,
thus, no bar to the imposition or the impugned penalty. [509E-F] & CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 886 of 1971.
(From the judgment and order dated the
18.9.1969 of the Allahabad High Court in I. T. R. Misc. Case No. 836 of 1963.)
G. C. Sharma, V. N. Ganpule, D. K. Jain, Anup Sharma and P. C. Kapur, for the
B. Sen and 5. P. Nayar, for the respondent
The Judgment of the Court was delivered by JASWANT SINGH, J. This is an appeal
by certificate of fitness granted by the High Court of Judicature at Allahabad
under section 66 A(2) of the Indian Income-tax Act, 1922 (hereinafter referred
to as 'the Act') from its judgment dated September 18, 1969 in I.T.R. Misc.
Case No. 836 of 1963.
The facts giving rise to this appeal are: The
appellant, a Hindu undivided family consisted of Gauri Shankar, the father, and
his three sons viz. Chandrabhan, Bengali Lal and Brij Kishan. Gauri Shankar,
the karta of the family who was incharge of the affairs of the family during
the relevant year which extended from April 13, 1945 to April 12, 1946, the
assessment year being 1946-47, died on April 2, 1946. He was succeeded by his
son, Chandrabhan as Karta of the family. The appellant had, in the first
instance, filed a return showing an income of Rs. 9,701 j-.
On scrutiny of the relevant material, the
Income Tax Officer found a number of discrepencies in the accounts of the
appellant and also noted the existence of cash credits to the appellant's
account in the books of another firm viz.
M/s. Tilyani Glass Works and a certain sum
deposited in an account styled as Abdul Wahid Khan & Sons. He thereupon
issued a notice dated March 15, 1957, calling upon the appellant to explain the
discrepencies in the accounts as also in the cash credits and to show cause why
a penalty under section 28(1)(c) of the Act be not imposed upon it. In response
to the notice, a representative of the appellant appeared before the Income Tax
officer and voluntarily agreed to a sum of Rs. 15,000/- being treated as its
After hearing the Appellant's representative
the Income Tax Officer felt satisfied that the appellant had deliberately
concealed its income and furnished an inaccurate return.
Accordingly, by his order dated March 20,
1958, he added a sum of Rs. 68,550/- to the income of the appellant and imposed
on it a penalty of Rs. 26,000/-. Meanwhile, on March 19, 1957, an application
under section 25-A of the Act was made to the Income Tax officer for an order
recording partition of joint family property in definite portions, which
according to the application had taken place amongst the members of the Hindu
undivided family on June 22, 1956.
The Income Tax Officer on being satisfied
after making enquiries that a complete partition of the joint family property
has taken place, recorded an order under section 25A (1) of the Act on March
26, 1962, accepting the partition with effect 507 from June 22, 1956, as
claimed. Against the penalty of Rs.
26,000/ imposed the Income Tax Officer by his
order dated March 20, 1958, the appellant preferred an appeal to the Appellate
Assistant Commissioner, who reduced the Penalty to Rs. 15,000/-. Not satisfied
with THIS reduction, the appellant went up in further appeal to the Income tax
appellate Tribunal and raised before it a number of contentions Amongst other
things, it was urged before the Tribunal that since the Hindu undivided family
had disrupted on June 22, 1956, as accepted by the Income Tax officer in his
aforesaid order date March 26, 1962, passed under section 25-A(l) of the Act,
the imposition of the penalty by the Income Tax officer on March 20, 1958,
after the disruption of the family was bad in law and could not be sustained.
While rejecting the other contentions raised on behalf of the appellant, the
Tribunal upheld this contention by its order dated March 6, 1963. Thereupon the
Commissioner of Income-tax, U.P. made application before the Income-tax
Appellate Tribunal under section 66(1) of the Act requesting that the following
question of law arising from its decision be referred to the High Court:-
"Whether in the facts and circumstances of the case the imposition of
penalty under section 28 ( 1 ) (c) on the Hindu Undivided family after it had
disrupted within the meaning of section 25-A is bad in law".
Acceding to the request of the Commissioner
of Income Tax, the Tribunal referred the above mentioned question to the High
Court which answered the same in the negative The appellant thereupon applied
to the High Court and obtained the aforesaid certificate of fitness for appeal
to this Court. This is the matter is before us. E Relying on Commissioner of
Income Tax v. Sanichar Sah Bhim Sah(1), S. A. Raju Chattiar & Ors. v.
Collector of Madras & Anr.(2) Mahankali Subha Rao, Mahankali Nageswara Rao
& Anr. v. Commissioner of Income Tax Hyderabad(3) and Commissioner of
Income tax Punjab v. Mothu Ram Prem Chand(4) counsel for the appellant has
reiterated before us that since the Hindu undivided family had dissolved on
June 22, 1956 as accepted by the Income Tax officer vide his order dated March
26, 1962 passed under section 25-A of the Act and the Act did not provide any
machinery for imposition of the penalty on the Hindu family after its
disruption, the imposition of penalty on March 20, 1958 was had in law and
could not be sustained. Counsel appearing on behalf of the Revenue has, on the
other hand, urged that imposition of impugned penalty cannot be challenged as
in view of section 25-A(3) of the Act, a Hindu undivided family must be (deemed
to have continued in existence till the date of the passing of the order under-
section 25-A(l) of the Act.
For a proper determination of the question,
it is necessary to refer to section 25-a of the Act which at the relevant time
stood as under:- 25-A. (1) Where, at the time of making an assessment ll under
section 23, it is claimed by or on behalf of any member (1) (1957) 27 1. T. R.
307. (2) (1956) 29 I. T. R. 241 (3) (1957) 31 I. T. R 867. (4) (1967) 66 T. T.
508 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(LPN had taken place, and each
member or group of members shall in addition to any income-tax for which he of
may be separately liable and notwithstanding anything contained in sub section
(1) 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 with 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.`` it will be noticed that sub-section (3) of the above quoted section
embodies a legal fiction according to which a Hindu family which has been
previously assessed as 'undivided' is to be continued to be treated as
'undivided' till the passing of the order under sub-section of the section.
This view strength from two decisions of this Court in Additional Income tax
Officer Quddapah A. Thimmayya & Anr(1) and Joint family of Udayan Chinubhai
etc v. Commissioner of Income tax Gujarat(2) where it was held that so long(r
as No order under section 25-a(I) of the Act is recorded, the jurisdiction of
the Income tax officer to continue to assess as undivided despite partition
under personal law a Hindu family which has hitherto been asseesed in that
status remains unaffected. It will be profitable in this connection (1) (1955)
55 I.T.R. 666. (2) (1957) 63 I.T.R. 416.
509 to refer to the following observation
made in A. Thimmayya's case (supra) "The section makes two substantive
provisions (i) that a Hindu undivided family Which has been assessed to tax
shall he deemed, for The purposes of The Act, to continue to be treated as
undivided and therefore liable to be take in that stats unless an order is
passed in respect of that family recording, partition of its property as
contemplated by substation (t); and (ii) if at the time of making an assessment
it is claimed by or on behalf the members of the family that the property of
the joint family has been partitioned;
the members or groups of members in definite
portions, i.e. a complete partition of the entire estate is made resulting in
such physical division of the estate as it is capable of being made. the
Income-tax Officer shall hold an inquiry, and if he is satisfied that the
partition had taken place the shall record an order to that effect .. The
Income-tax Officer may assess the income of the Hindu family hither to assessed
as undivided notwithstanding partition, is no claim in that behalf has been
make to him or is he is not satisfied about the truth of the claim that the
joint family property has been partitioned in definite politics if on account
of some error or inadvertence he fails Lo dispose of the claim. In all these
cases his jurisdiction to assess the income of the family hitherto assessed as
undivided remain unaffected, for the procedure for making assessment of tax is
In face of the aforesaid decisions of this
court, it is Court it is not necessary to burden the record by discussing the
decisions cited by counsel for the appellant.
In the present case, there was not a whisper
of the application under section 25-A(1) of the Act by the appellant on March
15, 1957 when the penalty proceedings were initiated against it. Even on March
20, 1958, when the penalty was imposed, there was no order under section 25-A(1
) of the Act. It was only on March 26, 1962, that the partition was recognised
and order under section 25-A(1) of the Act was passed. There was thus no bar to
the imposition of the impugned penalty. Accordingly, we find no force in the
contention of counsel for the appellant and are of the opinion that the
question as was in the rightly by the High Court.