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Case Number

Income Tax Ref. No. 398 of 1969

Judges

S.N Dwivedi
Hari Swarup
C.S.P Singh, JJ.

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Smart Summary

Structured Summary of the Opinion (Dwivedi, J.)

Factual and Procedural Background

The Income-tax Appellate Tribunal referred the following question to this Court: “Whether on the facts and in the circumstances of the case, the Tribunal was right in cancelling the order of assessment”?

Pertinent facts as stated in the opinion:

Shri B.P. Tandon (the assessee) filed returns for assessment years 1958–59 and 1959–60. Initially he filed a single return in the status of an individual disclosing income from all sources.
Subsequently he filed two separate returns: one in the status of an individual (showing, inter alia, remuneration for services to Lala Manmohan Das Trust and director's fees) and another in the status of a Hindu Undivided Family (HUF) of which he claimed to be Karta (showing income from property and shares in various firms).
The Income-tax Officer (ITO) did not pass any order on the return filed in the status of an HUF but assessed the entire income in the assessee's hands as an individual.
The assessee appealed to the Appellate Assistant Commissioner; those appeals were dismissed. On further appeal, the Tribunal (first instance) held that income other than dividends held as beneficiary and remuneration for services to the trust belonged to the HUF and not to the assessee individually.
Following the Tribunal's order, the ITO passed an order on the HUF return, treating that return as pending; against that order the assessee appealed to the Appellate Assistant Commissioner, who dismissed the appeal. An appeal was taken to the Tribunal, which, following the decision in Raghunath Prasad Tandon v. Commissioner of Income-tax (51 I.T.R. 763), held that although the HUF return was not “disposed of factually” it was “virtually disposed of”, and thus not pending; the Tribunal held the ITO could not make any assessment based on it and cancelled the assessment.
The Commissioner of Income-tax applied to the Tribunal for a reference to this Court on the correctness of the Tribunal's cancellation; the Tribunal referred the question above to the Court.
During hearing, the assessee applied to admit two assessment orders (for 1958–59 and 1959–60); the Court admitted them by a separate order dated April 28, 1972.
The reference originally sat before a Division Bench, which, having doubts about the correctness of Raghunath Prasad Tandon, referred the matter to a larger Bench.

Legal Issues Presented

Whether on the facts and in the circumstances of the case, the Tribunal was right in cancelling the order of assessment?

Arguments of the Parties

Assessee's Arguments

Counsel for the assessee relied on passages from the ITO's assessment order for 1958–59 (first paragraph) to argue that the ITO had, by implication, disposed of the return filed in the status of the Hindu Undivided Family. The contention was that the language in the assessment order showed an implied disposal (virtual rejection) of the HUF return.
The assessee also relied on the decision in Raghunath Prasad Tandon v. Commissioner of Income-tax (51 I.T.R. 763) to support the proposition that a return can be deemed to have been “virtually disposed of” by implication.

Department's (Revenue's) Arguments

Counsel for the department invited the Court to examine the correctness of the Chief Justice's observations in Raghunath Prasad Tandon regarding implied or “virtual” disposal of a return, but the Court noted that full adjudication of that broader question was unnecessary for decision of this case.
The department contended (and the Court accepted) that even if the rule of implication applied generally, on the specific facts before the Court the assessee could not succeed — i.e., the Tribunal was not right to cancel the assessment.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Raghunath Prasad Tandon v. Commissioner of Income-tax, 51 I.T.R. 763	The principle that a return may be deemed to have been “virtually rejected” or “virtually disposed of” by implication where, on the facts, the ITO's actions make it plain that the return was not pending (i.e., implied rejection may amount to escape of income from assessment).	The Court examined and quoted the Chief Justice's view from that decision but distinguished it on the facts: in Raghunath Prasad Tandon the ITO had necessarily relied on both returns to determine the HUF's total income and thereby impliedly disposed of the other return. In the present case the Court held it was not reasonably plain that the ITO had in mind the HUF return when assessing the assessee as an individual. The Court therefore held that Raghunath Prasad Tandon did not assist the assessee in this matter and did not apply to produce a deemed disposal of the HUF return here.

Court's Reasoning and Analysis

The Court's reasoning proceeds in these steps (all based on the text of the opinion):

The Court noted that counsel for the Department asked it to examine the correctness of the Chief Justice's remarks in Raghunath Prasad Tandon, but observed that such a broader enquiry was unnecessary for resolving the present reference; even assuming the rule of implication exists, the assessee would not succeed on the facts before the Court.
Turning to the facts of the present case, the Court analyzed the sequence of returns filed by the assessee: an initial single return as an individual (disclosing income from all sources), followed by two separate returns (one as individual, one as HUF).
The Court examined the ITO's assessment order (noting particularly its first paragraph for 1958–59) and the ITO's express determination that the assessee's status was that of an individual and that he would complete the assessment in that status.
The Court rejected the assessee's submission that those passages established an irresistible inference that the ITO had disposed of the HUF return by implication. The Court emphasized the conditional nature of implying facts: implication is permissible only when reasonably plain and necessary from the record.
The Court explained that because the assessee had initially filed a single comprehensive return as an individual, the ITO could legitimately proceed to assess the assessee as an individual based on that return without having to refer to the subsequent HUF return. In other words, it was not necessary for the ITO to look into the HUF return in order to determine the assessee's individual income.
The Court therefore concluded that it was not reasonably plain from the assessment order that the ITO had the HUF return in mind or had in fact disposed of it; the ITO might simply have overlooked the HUF return or not considered it, and a mere rejection of the argument that some incomes were HUF incomes does not automatically amount to an implied disposal of the HUF return.
The Court contrasted the present facts with those in Raghunath Prasad Tandon, where the ITO had assessed the HUF on total income shown in two returns and had treated the individual return as having been impliedly disposed of; that factual matrix made implication appropriate there but not in the present case.
Finally, the Court observed that parties had cited other cases on the broader question whether the rule of implication can be applied, but the Court expressly declined to decide that broader question in this judgment.

Holding and Implications

Core Ruling: The question referred is answered in the negative — the Tribunal was not right in cancelling the order of assessment.

Immediate consequences and directions as stated in the opinion:

The Tribunal's cancellation of the assessment was held to be incorrect on the facts of this case; the assessment made by the Income-tax Officer should not have been cancelled.
The Department is awarded costs of Rs. 200 and counsel's fee is assessed accordingly.

The Court did not decide the general legal question whether the rule of implication (deeming a return to have been virtually disposed of) is applicable in all circumstances; on that broader issue the opinion expressly refrains from laying down a general rule or precedent.

Question answered.

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Commissioner Of Income Tax, U.P., Lucknow v. Beni Prasad Tandon

Dwivedi, J.:— The Income-tax Appellate Tribunal has referred for the Court's opinion this question.

“Whether on the facts and in the circumstances of the case, the Tribunal was right in cancelling the order of assessment”?

2. Let us give the pertinent facts now. Shri B.P Tandon, the assessee, filed returns for the assessment years 1958-1959 and 1959-1960. The returns were filed in the status of individual disclosing his income from all sources. Subsequently he filed two separate returns. In one return he showed income in the status of an individual. In the other return he showed income as the Karta of a Hindu undivided family. In the first return his remuneration for services rendered to Lala Manmohan Das Trust was shown as his personal income; in the other-return income of the Hindu undivided family of which he was the Karta was shown. The Income-tax Officer did not pass any order on the return filed by him in the status of a Hindu Undivided family. But he held that the entire income was assessable in his hands in the status of an individual he filed two appeals before the Appellate Assistant Commissioner. They were dismissed. On a further appeal, the Tribunal held that the income other than the dividends from the shares held by him as a beneficiary and his remuneration for services rendered to Lala Manmohan Das Trust belonged to the Hindu undivided family of which he was the Karta and did not belong to him in the status of an individual. After the order of the Tribunal, the Income-tax, Officer passed an order on the return submitted by Shri B.P Tandon in the status of a Hindu undivided family of which he was the karta. The Income-tax Officer was of the view that the said return was pending. Against that order Shri B.P Tandon filed an appeal before the Appellate Assistant Commissioner. The appeal was dismissed. An appeal was taken to the Tribunal. Following the decision of this court Raghunath Prasad Tandon v. Commissioner of Income-tax . 51 I.T.R 763., the, Tribunal held that although the return filed by Shri B.P Tandon in the status of a Hindu undivided family was not “disposed of factually”, it was “virtually disposed of”. On that view the Tribunal further held that the return was not pending and the Income-tax Officer could not make any assessment on the basis of it.

3. On the application of the Commissioner of Income-tax, the Tribunal referred the question that we have set forth earlier.

4. In the course of hearing the assessee made an application for admitting two documents. They are assessment orders made by the Income-tax Officer for the assessment years 1958-1959 and 1959-1960. As they are relevant for dividing the question in issue, we have admitted them by a separate order dated April 28, 1972. We will refer to those documents later.

5. At the outset the reference was listed before a Division Bench. It seems that the Division Bench felt some doubt about the correctness of the decision in Raghunath Prasad Tandon v. Commissioner of Income Tax so it has referred the reference to a larger Bench.

6. In Raghunath Prasad Tandon, Shri Justice Desai said:

“In the instant case the Income-tax Officer had virtually rejected the return of the assessee and it was not pending when he issued the notices under Sec. 34(1). So long as a return is pending before the Income-tax Officer he may not say that any income mentioned in it has escaped assessment, but virtual rejection of a return may amount to escape of the income mentioned in it from assessment. The return of the assessee cannot be said to have been pending merely because the Income-tax Officer did not pass a specific order rejecting it. When he assessed all the incomes mentioned in it as the income of the Hindu undivided family and did not assess the assessee at all on it, it meant that he had rejected the return and not kept it pending.”

7. The Chief Justice applied the rule of implication to the case before him. On the facts of that case he was of the view that the return should be deemed to have been impliedly disposed of.

8. Counsel for the department asked us to examine the correctness of the Chief Justice's remarks. It appears to us that it is not necessary to do so in this case. Even assuming that the rule of implication applies, the assessee cannot succeed and the assessment made by the Income-tax Officer should not have been cancelled by the Tribunal.

9. We shall now try to show whether the return filed by Shri B.P Tandon in the status of a Hindu undivided family can be deemed to have been ‘virtually disposed of’. Counsel for the assessee has referred us to the first paragraph of the order of the Income-tax Officer for the year 1958-1959. The First paragraph relevantly reads:

“The assessments in this case had, till last year, been made in the status of Individual. Even for the assessment year under consideration the assessee filed the return of income showing status as individual and showing therein the income from property, share in various firms, remuneration and beneficiary allowance in the trust and from director's fees. However, subsequently, fresh returns were filed, one showing the status an individual in which the income from remuneration from Lala Manmohan Das Trust and director's fees were and the other declaring that status was H.U.F in which the incomes from property and from shares in various firms were shown. The assessee was required to prove the status.”

10. The Income-tax Officer, did not accept the assessee's contention that certain income were received in the status of a Hindu undivided family. He assessed all incomes in the status of Individual. He said: “I think Shri Beni Prasad Tandon cannot be assessed in the status of a Hindu undivided family ……. I shall determine the status of the assessee as Individual and complete the assessment in that status”. It is urged by a counsel for the assessee that if these passages are taken into consideration it would irresistibly follow that the Income-tax Officer had disposed of the return in the status of a Hindu undivided family by implication. We are unable to accept this argument.

11. The Court may read something by way of implication if it is reasonably plain and necessary. It may be recalled that in the first instance Sri B.P Tandon had filed a single return in the status of Individual. In that return he had disclosed income from all sources. Subsequently he filed two separate returns; in one return he showed certain incomes in the status of Individual; in the other return he showed certain other incomes in the status of a Hindu undivided family. When the Income-tax Officer was proceeding to assess tax on Shri B.P Tandon in the status of Individual, it was not necessary for him to look into the other return filed in the status of a Hindu undivided family. The entire income was shown in the first return filed by Shri B.P Tandon in the status of individual. From that return the Income-tax Officer could find out various incomes earned by the assessee as Individual. Had he not filed that return in the first instance, it could have plausibly been argued that in order to find out all incomes the Income-tax Officer must have referred to the subsequent return filed in the status of a Hindu undivided family. In that event it could have plausibly been argued that the Income-tax Officer had disposed of the return filed in the status of a Hindu undivided family. But as already indicated, on account of the initial single return, it was not necessary for the Income-tax Officer to look into the return filed in the status of a Hindu undivided family. Accordingly it cannot be implied that he had disposed of the assessee's return filed in the status of a Hindu undivided family.

12. It is not reasonably plain from the assessment order of the Income-tax Officer that he had at that time in his mind the return of the assessee filed in the status of a Hindu undivided family. While he was seeking to assess tax on the assessee as an Individual, it was argued before him that some of the incomes were earned by the Hindu undivided family. He has discussed that argument. He has not accepted it. But the rejection of the argument does not necessarily show that he has disposed of the return filed in the status of a Hindu undivided family. He might have overlooked this return by oversight or otherwise.

13. The facts in Raghunath Prasad Tandon are radically different from the facts of our case. In Raghunath Prasad Tandon the assessee had filed two separate returns, one in the status of Individual and the other in the status of a Hindu undivided family. The Income-tax Officer assessed the Hindu undivided family on the total income shown in the two returns, treating the income of Individual as the income of the Hindu undivided family. No order was passed on the return filed in the status of Individual. The Chief Justice held that the return filed in the status of Individual should be deemed to have been virtually disposed of. It may be observed that in that case it was necessary for the Income-tax Officer to refer to the return filed in the status of Individual in order to find out the total income of the assessee in the status of a Hindu undivided family. In our case we have already held that it was not necessary to refer to the return filed by Sri B.P Tandon in the status of a Hindu undivided family. So Raghunath Prasad Tandon cannot help the assessee.

14. Counsel for parties have referred us to several cases on the other question whether the rule of implication can be applied or not. We are not deciding that question in this case. So it is not necessary to discuss those cases in this judgment.

15. As a result of the foregoing discussion we answer the question referred to us in the negative. The Tribunal was not right in cancelling the order of assessment. The Department shall get costs which we assess at Rs. 200/-. Counsel's fee is also assessed accordingly.

Question answered.

Commissioner Of Income Tax, U.P., Lucknow v. Beni Prasad Tandon

Structured Summary of the Opinion (Dwivedi, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Department's (Revenue's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income Tax, U.P., Lucknow v. Beni Prasad Tandon

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