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  • A.P Misra
  • M.C Agarwal, JJ.
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Smart Summary

Structured Summary of the Opinion (M.C. Agarwal, J.)

Factual and Procedural Background

The petitions under article 226 challenge notices issued under section 148 of the Income-tax Act, 1961 for assessment years 1971–72 and 1975–76. The Income-tax Officer, Gonda, issued notices requiring the petitioner to file returns on the ground that he had reason to believe the petitioner's income for those years had escaped assessment.

Relevant facts set out in the opinion (as pleaded and recorded):

  • The petitioner was a member of a Hindu undivided family (HUF) whose karta was Umrao Lal (the petitioner's father). On October 15, 1964 a partial partition occurred, creating a smaller HUF headed by the petitioner (Gokul Chand as karta), which invested funds as partner in Messrs. Ram Deo Onkar Mal.
  • On October 1, 1968, the smaller HUF was partitioned and Rs. 88,353.78 standing to its credit in the firm's books was partitioned among the karta, his wife and sons, with Rs.15,000 reserved for a daughter's marriage. A memorandum of partition dated October 5, 1968, evidences this partition.
  • The Income-tax Officer, Gonda, issued an order dated November 27, 1971 under section 171 recognizing the partition. The assessment order for 1970–71 bifurcated income and assessed the petitioner individually (share determined at Rs.6,093).
  • On March 30, 1980 a notice under section 148 was issued to the petitioner for assessment year 1971–72. A separate notice under section 148 was issued (on March 29, 1978 and later actions) for assessment year 1975–76 because a return filed for that year was unsigned and therefore held invalid by the Income-tax Officer.
  • The petitioner challenged the validity of the notices: (a) for 1971–72 contending the partition had been recognized and so any notice should have been addressed to the HUF (not to him individually) and the notice failed to specify the income said to have escaped assessment; (b) for 1975–76 contending procedural or other infirmities (issues on that petition are addressed in the opinion).

Legal Issues Presented

  1. Whether the notice issued under section 148 for assessment year 1975–76 was valid where the return filed by Gokul Chand for that year was unsigned (and therefore invalid), enabling the Assessing Officer to issue the notice under section 147(a) / section 148.
  2. Whether the notice issued under section 148 for assessment year 1971–72 was valid when it was addressed to Gokul Chand in his individual capacity despite an earlier order under section 171 (dated November 27, 1971) recognising a partition that produced a separate HUF — specifically, whether the Assessing Officer could proceed to issue such a notice without first setting aside the section 171 order.
  3. Whether an order under section 171 recognising a partition is binding until set aside, and if so, whether the Assessing Officer should have sought to set that order aside before issuing reassessment proceedings treating the family as undivided.
  4. Whether alleged defects in the partition (contention that the partition was a "got up affair", account-keeping, or that sons were minors and could not consent) justify ignoring the section 171 order without taking steps to set it aside.

Arguments of the Parties

Petitioner's Arguments

  • The partition of October 1, 1968 was acted upon and recognised by the Income-tax Officer by his order dated November 27, 1971; since then members were separately assessed, and therefore any notice should have been issued to the HUF (if at all) and not to Gokul Chand in his personal capacity.
  • The impugned notice for 1971–72 did not disclose which income was alleged to have escaped assessment and was addressed to Gokul Chand individually; it was also said to have been served on Umrao Lal who lacked authority to accept it on the petitioner's behalf.
  • For 1975–76 the petitioner contended (implicitly) that there were issues with the notice but, as recorded, the petitioner did not dispute that the return filed for 1975–76 lacked the assessee's signature.

Respondent's (Income-tax Department) Arguments

  • For 1971–72 the Department contended the alleged partition and the memorandum of partition were concocted and not acted upon; the capital in the firm's books continued in the name of Gokul Chand and profits were credited to his account; a statement of February 25, 1980 suggested Gokul Chand admitted partnership capacity as karta.
  • The Department argued that the order under section 171 dated November 27, 1971 had been passed on insufficient facts and was obtained by misrepresentation; therefore the Department implied it could proceed with reassessment without explicitly setting aside the section 171 order.
  • In reply regarding address of the notice, the Department asserted that the notice under section 148 was validly issued in the name of Gokul Chand, which is also the name of the family.
  • For 1975–76 the Department relied on its own record and the order of March 29, 1978 (noting the return was invalid because unsigned) to justify issuance of the notice under section 148 pursuant to section 147(a).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Ganeshi Lal Sham Lal, [1966] 61 ITR 408 (Punjab High Court) That a reassessment could not be made ignoring an earlier order under the equivalent provision (section 25A of the 1922 Act); the correct procedure is to move to set aside the earlier order (under section 33B of the 1922 Act in that context). An order under that provision remains effective for subsequent years unless set aside. The court relied on this precedent to hold that an order under section 171 (recognising partition) is binding until set aside and that the Assessing Officer could not ignore it in reassessment proceedings without seeking its vacation through appropriate proceedings.
CIT v. Jagdish Lal and Sons, [1986] 157 ITR 620 Similar principle as above: ordinarily the same facts may be investigated for subsequent years, but an order recognising partition in an HUF cannot be ignored; a family cannot be treated as undivided for assessment unless the earlier recognising order is set aside by competent authority. Applied to reinforce that the section 171 order recognising partition must be respected and cannot be disregarded by the Assessing Officer when issuing reassessment notices.
Apoorva Shantilal Shah v. CIT, [1983] 141 ITR 558 (Supreme Court) Upheld the authority of a father (karta) to effect even partial partitions of some family properties; consent of sons was not held necessary in that context. Used to reject the respondent's contention that the sons' minority rendered the partition invalid; the court observed that the karta could effect partition and that lack of sons' consent did not invalidate the partition relied upon in the section 171 order.

Court's Reasoning and Analysis

The court addressed each assessment year separately and applied statutory provisions and authority from precedent to the facts as pleaded:

  1. Assessment year 1975–76:
    • The court accepted the uncontested factual position (not controverted by the petitioner) that the return filed by Gokul Chand for 1975–76 did not bear his signature and was therefore an invalid return.
    • Because the return was invalid, no assessment could properly be made on that return; by operation of section 147(a) the Income-tax Officer could issue a notice under section 148 requiring the assessee to file a return.
    • On that basis, the court concluded the notice issued for 1975–76 was valid and that Writ Petition No. 224 of 1980 should be dismissed.
  2. Assessment year 1971–72:
    • The court examined the impugned notice and observed it was addressed to "Sri Gokul Chand, C/o. Ram Deo Onkar Mal, Barragaon, Gonda" with no indication it was addressed to him in his capacity as karta of an HUF.
    • The court noted an earlier order under section 171 dated November 27, 1971 (passed during assessment proceedings for 1970–71) that recorded and recognised the partition and allocated shares (and that subsequent assessments proceeded on the basis that the members were separately assessed).
    • Relying on the statutory character of section 171 (paras. 10–11) and authorities (CIT v. Ganeshi Lal Sham Lal; CIT v. Jagdish Lal and Sons), the court reasoned that an order under section 171 is a judicial order passed after inquiry and is binding between the parties until set aside in accordance with law.
    • Because the section 171 order had not been set aside, the Assessing Officer could not proceed to assess the erstwhile HUF by ignoring that order; if the Assessing Officer believed the order had been obtained by misrepresentation or was incorrect, the correct course would have been to take steps to set aside the section 171 order first.
    • The court considered respondent's contentions (account-books showing capital in Gokul Chand's name, statements suggesting the partition was a "got up affair") but held that even if such material had been obtained later, the proper course was to move to set aside the section 171 order — which was not done. The court expressly stated it need not decide whether the statement of February 25, 1980 supported the respondent's inference.
    • The contention that the sons were minors and could not consent to partition was addressed by reference to Apoorva Shantilal Shah v. CIT: the Supreme Court had upheld a father's authority to effect partial partition and held sons' consent was not necessary; in the present case the partition was a complete partition and could not be invalidated merely on that ground.
    • Because the notice was addressed to Gokul Chand individually and, on the Department's own showing, there was no allegation that income of Gokul Chand personally had escaped assessment, the court held the notice invalid and quashed it for the 1971–72 assessment year.

Holding and Implications

Holding:

  • Writ Petition No. 223 of 1980 (relating to assessment year 1971–72) is ALLOWED; the impugned notice dated March 30, 1980 issued under section 148 to the petitioner for 1971–72 is quashed.
  • Writ Petition No. 224 of 1980 (relating to assessment year 1975–76) is DISMISSED; the notice for 1975–76 was held valid because the return filed for that year was unsigned and therefore invalid.
  • The interim order dated July 23, 1980 is vacated.
  • The parties are ordered to bear their own costs.

Implications:

  • Direct effect: The notice to the petitioner for 1971–72 is set aside; the notice for 1975–76 stands. The parties must bear their own costs.
  • The court applied existing precedent to hold that an order under section 171 recording a partition is binding until set aside and that where such an order exists and has not been set aside, the Assessing Officer cannot ignore it and issue reassessment proceedings treating the family as undivided. The opinion references prior cases to support that procedural route (i.e., seeking to set aside the earlier order) rather than proceeding directly with reassessment.
  • The opinion does not state that it is establishing a new legal principle beyond the application of the cited precedents and statutory provisions.
Show full summary ...

    Gokul Chand v. Income-Tax Officer.

    M.C Agarwal, J.:— These two petitions under article 226 of the Constitution of India have been filed challenging the issue of notices under section 148 of the Income-tax Act, 1961, for the assessment years 1971–72 and 1975–76, whereby the Income-tax Officer, Gonda, required the petitioner to file returns of income for these years as he had reason to believe that the petitioner's income for these years had escaped assessment and he wanted to reassess the same.

    2. The petitioner's case is that he is a member of a Hindu undivided family of which Umrao Lal, the petitioner's father is the karta. On October 15, 1964, a partial partition took place in the said Hindu undivided family, whereby another Hindu undivided family consisting of the petitioner, Gokul Chand, as karta, his wife, sons and daughter as members, received an amount which constituted the nucleus of this Hindu undivided family of which the petitioner became the karta. On October 16, 1964, this smaller Hindu undivided family became a partner in Messrs. Ram Deo Onkar Mal through the petitioner and the amount received in the partial partition held on October 15, 1964, was invested as the share of the smaller Hindu undivided family. The income so earned by the smaller Hindu undivided family was assessed through the petitioner as karta of this branch of a Hindu undivided family. On October 1, 1968, the smaller Hindu undivided family headed by the petitioner was subjected to a partition so that the amount of Rs. 88,353.78 standing to the credit of this smaller Hindu undivided family in the account books of Messrs. Ram Deo Onkar Mal was partitioned amongst the karta, his wife and sons after making a provision of Rs. 15,000, for the marriage expenses of the karta's daughter. This partition was evidenced by a memorandum of partition executed on October 5, 1968. This partition was recognised by the Income-tax Officer, Gonda, through an order dated November 27, 1971. For the assessment year 1970–71, the share income of the various members of the erstwhile family of the petitioner was determined at Rs. 30,464 and bifurcated between the various members and as a result the income of the petitioner, Gokul Chand, was determined at Rs. 6,093 only, vide assessment order dated November 27, 1971. According to the petitioner, since then all the members of the said Hindu undivided family were being separately assessed. The petitioner's contention is that all the primary facts relating to the aforesaid partition were disclosed before the Income-tax Officer passed the order on November 27, 1971, recognising the partition. On March 30, 1980, the Income-tax Officer issued a notice in the name of the petitioner under section 148 of the Income-tax Act, 1961. The petitioner's contention is that the notice is invalid as it does not disclose the income that was considered to have escaped assessment. It is further contended that the said notice was served on Umrao Lal, the father of the petitioner, who had no authority to accept the same on his behalf. It is contended that the said notice seemed to have been issued on the assumption that the partition that had taken place oh October 1, 1968, has not been acted upon. This assumption is controverted by the petitioner contending that the said partition was duly acted upon. It is further stated that if the partition had not been acted upon then the entire income arising from Ram Deo Onkar Mal in respect of the share of this family would be assessable in the hands of the family and not in the hands of the petitioner in his individual capacity and the notice issued to the petitioner under section 148 is improper. In a counter-affidavit filed in Writ Petition No. 223 of 1980 relating to the assessment year 1971–72, Sri S.R Tripathi, the then Income-tax Officer set up the respondent's case. It has been contended that it is incorrect that the family share in the partnership firm, Ram Deo Onkar Mal, was partitioned. According to him, the alleged partition and the memorandum of partition was a got up affair which was never intended to be acted upon. It is contended that the amount standing to the credit of the family in the books of the partnership firm, Ram Deo Onkar Mal was never partitioned amongst the members of the family and the entire capital continued as a credit balance in the name of Gokul Chand. The profits arising from the said firm were also credited to the account of the said Gokul Chand. It is stated that in statement, dated February 25, 1980, before the Income-tax Officer, Shri Gokul Chand admitted that he is a partner in the firm in a capacity as a karta of the family. The order under section 171 of the Act recognising the claim of partition as claimed to have been passed on insufficient facts and believing the case of the petitioner which was subsequently found to be wholly untrue. It is also claimed that the sons of Gokul Chand were minors at the relevant time and were incapable of giving consent to the partition and, therefore, Gokul Chand could not have legally effected the partition. It is alleged that the family of which Gokul Chand was the karta did not keep any books of account prior to October 1, 1968, and the books of account commenced on October 1, 1968, were intended to create evidence only for the alleged partition. It is alleged that the assessments were made under section 143(1) without any enquiry by the concerned Assessing Officer. In reply to paragraph 19 of the writ petition, in which the petitioner contended that the notice could have been issued to the Hindu undivided family headed by him and not to him in his individual capacity, it has been stated that it needs no reply except that the notice under section 148 was validly issued in the name of Gokul Chand which is also the name of the family.

    3. In Writ Petition No. 224 of 1980, the case of the respondent is that a notice under section 148 was issued because the return of income filed by Gokul Chand was found to be invalid. According to the respondent, Gokul Chand has filed a return of income for the assessment year 1975–76 which was not signed by him and, therefore, on March 29, 1978, the order as below was passed:

    “Return invalid because the same has not been signed. The same being invalid. The return is filed. Notice under section 148 will be issued.”

    4. It was for the reason as stated in the above order that a notice under section 148 was issued.

    5. We have heard learned counsel for the petitioner and Sri Rajesh Kumar Agarwal, learned standing counsel for the Income-tax Department.

    6. As regards the assessment year 1975–76, it has not been controverted on behalf of the petitioner that the return filed by Gokul Chand for that year did not bear his signature and was therefore, invalid. The contents of paragraph 14 of the counter-affidavit in which the respondent had quoted the aforesaid order dated March 29, 1978, were not controverted in the rejoinder affidavit of Gokul Chand. Patently the return of income not having been signed, it was an invalid return on the basis of which no assessment could have been made. Therefore, by virtue of section 147(a) of the Income-tax Act, 1961, the Income-tax Officer could have issued a notice under section 148 requiring the assessee to file a return and, hence, the notice issued for the assessment year 1975–76 was, in our view, a valid notice and Writ Petition No. 224 of 1980 deserves to be dismissed.

    7. As regards, the assessment year 1971–72 which is the subject of Writ Petition No. 223 of 1980, we are of the view that this writ petition must succeed.

    8. As already stated, one of the contentions of the petitioner is that the impugned notice has been issued to him in his individual capacity, whereas the partition dated October 1, 1968, was to be ignored by the Department, the notice under section 148 should have been issued to the Hindu undivided family whose income alone could be deemed to have escaped assessment. A copy of the impugned notice is annexure “8” to the writ petition. This notice is addressed to “Sri Gokul Chand, C/o. Ram Deo Onkar Mal, Barragaon, Gonda”. This notice does not mention that it was being issued to Gokul Chand in his capacity as the karta of a Hindu undivided family. Gokul Chand was being assessed in his individual capacity from the year 1970–71 onwards. As is evident from the copy of the assessment order for the assessment year 1970–71 annexed at serial No. 5 to the writ petition, it was during the course of this assessment that the order recognising the partition was passed under section 171 of the Act on November 27, 1971. The Hindu undivided family that came into existence on the partition held on October 15, 1964, in the bigger Hindu undivided family, is not shown to have ever been assessed to tax. The assessment order (annexure “5” to the writ petition) and the order under section 171 (annexure “6” to the writ petition) mention the general index register number as G-707 which is G.I.R number of Gokul Chand individual. The impugned notice (annexure “6” to the writ petition), as alleged by the petitioner and as admitted by the respondent, did not indicate anything about the cause of the issue of the notice and, according to the respondent, it was not necessary to mention which income had escaped assessment. But where in circumstances like this, a person has a dual capacity as an individual as well as the karta of a Hindu undivided family, it was necessary, in case the notice was intended to be addressed to the Hindu undivided family, to specifically mention that the notice was being addressed to Gokul Chand in his capacity as a karta of a Hindu undivided family. This has not been done and on the face of it the notice has been addressed to Gokul Chand individual, who was an existing assessee and about whom there is no allegation of escapement of income even in the counter-affidavit filed on behalf of the respondent. The petitioner, Gokul Chand, has filed this writ petition as an individual and the respondent has not set up any plea that this writ petition is not maintainable because the notice was not addressed to him. We have already mentioned the manner in which paragraph 19 of the writ petition was replied to by the respondent in which it was stated that the notice was validly issued in the name of Gokul Chand which is also the name of the family. Even if the two tax identities had the same name, it was imperative for the Assessing Officer to specify in the notice that it was addressed to the Hindu undivided family and not to individual Gokul Chand particularly when Gokul Chand was the existing assessee and the alleged Hindu undivided family was not. In our view, therefore, the impugned notice that was issued to Gokul Chand is invalid as on the Department's own showing no income earned by Gokul Chand had escaped assessment.

    9. Another contention raised on behalf of the petitioner is that an order under section 171 having been passed by the Income-tax Officer recognising the partition, it was not permissible for the Income-tax Officer to ignore the same subsequently and assess the family as undivided without setting aside that order. In this case, admittedly, an order under section 171 was passed by the Income-tax Officer on November 27, 1971 (annexure “6” to the writ petition), the Department contends that this order was passed on insufficient grounds and the correct facts were not disclosed. The only important fact relied upon by the respondent is that in the account books of the firm Ram Deo Onkar Mal, the capital continued to stand in the name of Gokul Chand and no partition was effected in the books of that firm. This fact is alleged to have since been brought to the notice of the Income-tax Officer concerned. This contention does not appear to be true. The order dated November 27, 1971, mentions the manner of partition stating that this has been effected by dividing the amount in the personal set of account books of the Hindu undivided family, meaning thereby that the Income-tax Officer knew that in the books of the firm the capital remained as it was or he could have with reasonable efforts found out the same. The order was passed in the assessment proceedings of Gokul Chand individual and the partition was recognised year after year till the impugned notice was issued.

    10. Sub-sections (2), (3) and (4) of section 171 of the Income-tax Act, 1961, read as under:

    “(2) Where, at the time of making an assessment under section 143 or section 144, it is claimed by or on behalf of any member of a Hindu family assessed as undivided that a partition, whether total or partial, has taken place among the members of such family, the Assessing Officer shall make an inquiry thereinto after giving notice of the inquiry to all the members of the family.

    (3) On the completion of the inquiry, the Assessing Officer shall record a finding as to whether there has been a total or partial partition of the joint family property, and, if there has been such a partition, the date on which it has taken place.

    (4) Where a finding of total or partial partition has been recorded by the Assessing Officer under this section, and the partition took place during the previous year,—

    (a) the total income of the joint family in respect of the period up to the date of partition shall be assessed as if no partition had taken place; and

    (b) each member or group of members shall, in addition to any tax for which he or it may be separately liable and notwithstanding anything contained in clause (2) of section 10, be jointly and severally liable for the tax on the income so assessed.”

    11. The aforesaid provisions indicate that an order under section 171 is a judicial order to be passed after full and detailed enquiry and is to be binding between the parties till the same is set aside in accordance with law.

    12. In CIT v. Ganeshi Lal Sham Lal, [1966] 61 ITR 408, the Punjab High Court while dealing with an identical provision in section 25A of the Indian Income-tax Act, 1922, held that the reassessment under section 34 of the 1922 Act could not be made ignoring the earlier order under section 25A on the ground that the Income-tax Officer had received information that the order under section 25A was obtained by misrepresentation. The High Court held that the proper course for the Income-tax Officer to adopt in such a case was to move the Commissioner of Income-tax to take action under section 33B of the Act to set aside the order under section 25A. The court further held that an order under section 25A of the Act has to be passed only once and remains effective for subsequent years unless set aside in accordance with law. This court also took a similar view in CIT v. Jagdish Lal and Sons, [1986] 157 ITR 620. This court held that ordinarily, there is no bar against the investigation by the Income-tax Officer of the same facts in respect of which a decision was arrived at in an earlier year. But this rule does not apply when dealing with an order recognising partition in a Hindu undivided family. This court held that a family cannot be assessed in the status of a Hindu undivided family unless that order is set aside by a competent authority.

    13. Admittedly, in the present case, order dated November 27, 1971, has not been set aside and, therefore, as long as that order is effective, the Income-tax Officer cannot take any steps to assess the erstwhile Hindu undivided family by ignoring the said order.

    14. Learned counsel for the respondent referred to a statement made by Gokul Chand on February 25, 1980, before the Income-tax Officer from which it was inferred that the partition was a made up affair and in fact no such partition had taken place. The statement if read as a whole may not sustain such a conclusion but we need not express any opinion on this account because it is not necessary for us to do so. It was for the Assessing Officer to take steps to get the order under section 171 set aside, if the Assessing Officer felt that it was not a correct order. That has not been done.

    15. One of the reasons set up in the counter-affidavit for challenging the validity of the partition is that the sons of Gokul Chand were minors and, therefore, he could not effect a partition. This contention is no more tenable because the Supreme Court in Apoorva Shantilal Shah v. CIT, [1983] 141 ITR 558 has upheld the authority of a father to effect even partial partition of some of the family properties and consent of the sons was not held to be necessary. In the case before us, however, the partition effected by Gokul Chand of the property received at the partition of the bigger Hindu undivided family was a complete partition and not a partial one and the same cannot be challenged on the ground of lack of authority of the karta.

    16. For the above reasons, Writ Petition No. 223 of 1980 is allowed and the impugned notice dated March 30, 1980 issued to the petitioner by the respondent under section 148 of the Income-tax Act, 1961, for the assessment year 1971–72 is hereby quashed. Writ Petition No. 224 of 1980 is dismissed. The interim order dated July 23, 1980 is vacated.

    17. In view of the aforesaid circumstances, the parties are ordered to bear their own costs.

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    Comments

    Gokul Chand v. Income-Tax Officer.
    (Jul 25, 1994)