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citation codes
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Acts
  • provisions of Section 20 of the Wealth-tax Act. Section 25A of the Indian Income-tax Act, 1922,
  • Section 5(1)(ii) of the Wealth-tax Act. Sub-clause (ii) of Section 5(1) of the Wealth-tax Act
  • Section 25A of the Indian Income-tax Act, 1922, and Section 20(1) of the Wealth-tax Act,
  • Section 25A of the Indian Income-tax Act, 1922, or Section 20(1) of the Wealth-tax Act,
  • Wealth-tax Act and the deeming provisions contained in Sub-section (2) of Section 20,
  • provisions contained in Section 14(1) of the Indian Income-tax Act, 1922.
  • Sub-sections (1) and (3) of Section 25A of the Indian Income-tax Act, 1922,
  • Section 25A of the Indian Income-tax Act, 1922. The Wealth-tax Act
  • provisions of Section 25A of the Indian Income-tax Act, 1922,
  • Sub-clause (ii) of Section 5(1) of the Wealth-tax Act
  • SECTION 20 WEALTH TAX ACT
  • SECTION 20 A WEALTH TAX ACT
  • provisions of Section 20(1) of the Wealth-tax Act.
  • INDIAN INCOME TAX ACT
  • Indian Income-tax (Amendment) Act, 1928 (3 of 1928),
  • Section 25A of the Indian Income-tax Act, 197.2,
  • Section 25A of the Indian Income-tax Act, 1922,
  • Section 27(1) of the Wealth-tax Act, 1957,
  • INCOME TAX ACT 1922
  • Section 5(1)(ii) of the Wealth-tax Act,
  • Section 20(1) of the Wealth-tax Act
  • SECTION 3 WEALTH TAX ACT
  • Sub-section (1) of Section 14,
  • WEALTH TAX ACT
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
Acts
  • provisions of Section 20 of the Wealth-tax Act. Section 25A of the Indian Income-tax Act, 1922,
  • Section 5(1)(ii) of the Wealth-tax Act. Sub-clause (ii) of Section 5(1) of the Wealth-tax Act
  • Section 25A of the Indian Income-tax Act, 1922, and Section 20(1) of the Wealth-tax Act,
  • Section 25A of the Indian Income-tax Act, 1922, or Section 20(1) of the Wealth-tax Act,
  • Wealth-tax Act and the deeming provisions contained in Sub-section (2) of Section 20,
  • provisions contained in Section 14(1) of the Indian Income-tax Act, 1922.
  • Sub-sections (1) and (3) of Section 25A of the Indian Income-tax Act, 1922,
  • Section 25A of the Indian Income-tax Act, 1922. The Wealth-tax Act
  • provisions of Section 25A of the Indian Income-tax Act, 1922,
  • Sub-clause (ii) of Section 5(1) of the Wealth-tax Act
  • SECTION 20 WEALTH TAX ACT
  • SECTION 20 A WEALTH TAX ACT
  • provisions of Section 20(1) of the Wealth-tax Act.
  • INDIAN INCOME TAX ACT
  • Indian Income-tax (Amendment) Act, 1928 (3 of 1928),
  • Section 25A of the Indian Income-tax Act, 197.2,
  • Section 25A of the Indian Income-tax Act, 1922,
  • Section 27(1) of the Wealth-tax Act, 1957,
  • INCOME TAX ACT 1922
  • Section 5(1)(ii) of the Wealth-tax Act,
  • Section 20(1) of the Wealth-tax Act
  • SECTION 3 WEALTH TAX ACT
  • Sub-section (1) of Section 14,
  • WEALTH TAX ACT
Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

This reference arises under Section 27(1) of the Wealth-tax Act, 1957 and asks whether the wealth-tax assessment for the assessment year 1957-58 was validly made on Shri Srilal Bagri as the karta of the Hindu undivided family (HUF) of M/s. Ricknath Shewkissen under Section 20 of the Wealth-tax Act, 1957.

Relevant facts (as stated in the opinion):

  • The HUF of M/s. Ricknath Shewkissen was being assessed in the status of a Hindu undivided family and was governed by the Mitakshara school of Hindu law.
  • A suit for partition was instituted in 1950; the opinion records that a preliminary decree was passed in June 1950 (the text contains two references to June 1950 dates: the 20th June, 1950 and the 26th June, 1950) and that a final decree was made in 1957 (the opinion also refers to a final decree dated 26th March, 1957 and elsewhere refers to 26th June, 1957 in relation to the final decree date). The opinion contains both date variants as they appear in the record.
  • The Wealth-tax Act came into force on 1 April 1957. For the assessment year 1957-58: a notice under Section 14(2) was served on the HUF; no return was filed; a notice under Section 16(4) was served on Shri Srilal Bagri as karta. The Wealth-tax Officer rejected the assessee's contention that the HUF had been dissolved by the preliminary decree and assessed the HUF's total wealth at Rs. 7,28,640, valuing house properties at 20 times the net annual value.
  • On appeal the Appellate Assistant Commissioner upheld the assessment but reduced the valuation multiple from 20 to 18. The Tribunal further reduced the multiple to 16 but otherwise upheld the assessment on the HUF.

Legal Issues Presented

  1. Whether, on the facts and circumstances of the case, and on a correct interpretation of Section 20 of the Wealth-tax Act, 1957, the assessment to wealth-tax for the assessment year 1957-58 has been validly made on Shri Srilal Bagri as the karta of the Hindu undivided family of M/s. Ricknath Shewkissen.
  2. Whether Section 20 of the Wealth-tax Act is a charging provision (i.e., can itself create an independent charge) or is merely a machinery section in pari materia with Section 25A of the Indian Income-tax Act, 1922, and, relatedly, whether Section 20 can be applied where the HUF had been disrupted prior to the relevant valuation date.

Arguments of the Parties

Assessee's Arguments

  • The HUF had been disrupted by the institution of the partition suit and the passing of the preliminary decree in June 1950, which occurred long before the relevant valuation date for the assessment year 1957-58; consequently there was no HUF on the relevant valuation date and no assessment could validly be made on the HUF.
  • Section 20 of the Wealth-tax Act is not a charging section and would have no application where the family had already ceased to be a Hindu undivided family prior to the relevant valuation date; unless a case falls within the charging provision contained in Section 3 no charge can be imposed.
  • Counsel relied on a number of decisions and authorities (several are cited in the opinion) to support the contention that a preliminary decree is sufficient to disrupt status but does not necessarily create the type of partition in 'definite portions' relevant to the machinery provisions.

Revenue's Arguments

  • Section 20 of the Wealth-tax Act is in pari materia with Section 25A of the Indian Income-tax Act, 1922; until the authorities are satisfied that the properties have been partitioned in "definite portions" the property may be assessed as belonging to the HUF.
  • A preliminary decree may disrupt status and declare shares, but it does not necessarily show that the properties have been physically partitioned in "definite portions" among members; the absence of such definite portions keeps the family liable to assessment as a HUF under Section 20 unless the Wealth-tax Officer is satisfied otherwise.
  • Because of the scheme of the Wealth-tax Act (including Section 5(1)(ii) and Section 3), the operation of Section 20 in the Wealth-tax Act is different in detail from Section 25A of the Income-tax Act; in particular Section 20(1) permits assessment on the HUF for the assessment year including the year in which partition takes place if that partition took place on the last day of the previous year, which indicates the officer’s authority to assess the HUF in certain temporal circumstances.
  • Counsel for the revenue relied on several authorities and textual sources (cases and sections cited in the opinion) to support these contentions.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Gordhandas T. Mangaldas v. Commissioner of Income-tax, [1943] 11 I.T.R. 183 (Bom.) Interpreting "division in definite portions" under Section 25A as requiring a physical division of property (Beaumont C.J.'s observations). The court quoted Beaumont C.J. to support the proposition that "definite portions" contemplates a physical division rather than merely a division of interest.
Lakhmichand Baijnath v. Commissioner of Income-tax (Supreme Court) Consideration of the scheme and purpose of Section 25A as a remedy where family was joint when income arose but not joint at assessment. The court relied on the Supreme Court's observations about why Section 25A was introduced and what defect it sought to remove; used to inform interpretation of Section 20 of the Wealth-tax Act.
Joint Family of Udayan Chinubhai v. Commissioner of Income-tax Approval of the view that "definite portions" implies physical division; construing Section 25A. The opinion notes that the judgment quoted Gordhandas with approval to support the construction that physical division is required to satisfy Section 25A-type provisions.
B. Jyoti Bhushan Gupta v. Commissioner of Income-tax, [1950] 18 I.T.R. 777 (All.) Held that a preliminary decree did not effect partition in "definite portions" within the meaning of Section 25A. The court cited this holding to support the proposition that a preliminary decree alone is not sufficient proof of partition in definite portions for the purpose of the statutory machinery.
Sudhir Chandra Nawn v. Wealth-tax Officer, Calcutta, [1968] 69 I.T.R. 897 (S.C.) Cited among authorities relevant to interpretation of HUF partition provisions (text gives the citation). The opinion records the citation as one of the decisions relied upon by counsel; the text does not elaborate further application beyond noting the citation.
Kawl Nain v. Budh Singh, L.R. 44 I.A. 159 (Privy Council, 1917) Held that institution of a suit for partition is an unequivocal intimation of intention to separate and severs joint status from the date of institution. The court used this authority to establish that under Mitakshara Hindu law the institution of a partition suit (and consequent expression of intention) disrupts the undivided family as a matter of Hindu law.
A. Raghavamma v. A. Chenchamma (Supreme Court) Reiterated that a member can disrupt joint status by a definite and unequivocal declaration of intent to separate. The opinion cites this case to confirm the proposition that severance of joint status can occur by clear intention to separate under Hindu law.
Sir Sundar Singh Majithia v. Commissioner of Income-tax, [1942] 10 I.T.R. 457 (P.C.) Section 25A addresses the difficulty where a family received income in the year of account but ceased to exist as such at assessment time. The judgment was cited to explain the remedial purpose of Section 25A and the difficulty it seeks to remedy.
Waman Satwappa Kalghatgi v. Commissioner of Income-tax, [1946] 14 I.T.R. 116 (Bom.) Decision that Section 25A is a machinery provision and not a charging section; it does not alter Hindu law. The court quoted the Bombay High Court's characterization of Section 25A as a machinery section to inform the analogous treatment of Section 20 of the Wealth-tax Act.
Kalwa Devadattam v. Union of India (Supreme Court) Held that if at the date when liability arose there was a joint family which later disrupted, tax will still be assessed on the joint family under Section 25A. The opinion cited the case to explain the principle that Section 25A permits assessment of the joint family where it existed at the time liability arose even if disrupted later; the court also noted limitations in applying Kalwa Devadattam to some factual situations.
Additional Income-tax Officer, Cuddapah v. A. Thimmayya (Supreme Court) Explained the scheme of Section 25A: officer to inquire, make order after notice, assess total income and apportion liability. The court cited this decision for the proposition that the Income-tax Officer must inquire and, if satisfied, record an order and make assessments accordingly; used to illuminate the machinery nature of these provisions.
Roshan Di Hatli v. Commissioner of Income-tax, [1968] 68 I.T.R. 177 (S.C.) Held that the decision in Kalwa Devadattam may not apply where joint status was dissolved before assessment; discussed limits of Section 25A. The opinion cited Roshan Di Hatli for the qualification that Kalwa Devadattam does not automatically mean Section 25A continues to apply where the family was dissolved before assessment in certain circumstances.

Court's Reasoning and Analysis

The court proceeded through a sequence of legal and factual analyses, strictly following the material contained in the opinion:

  1. The court first examined the applicable Hindu law on coparcenary and partition, relying on passages from Mulla's Hindu Law (Articles cited in the opinion). It summarized the Mitakshara doctrine that a coparcener's interest is an undivided, fluctuating interest that only becomes definite upon partition.
  2. The court accepted the authorities (Kawl Nain v. Budh Singh and A. Raghavamma v. A. Chenchamma) establishing that the institution of a partition suit and an unequivocal intention to separate will disrupt the Hindu undivided family and sever joint status from the date of institution (i.e., under Hindu law the family ceases to be a joint family upon such disruption).
  3. The court then turned to statutory provisions: it set out Section 25A of the Indian Income-tax Act, 1922 and Section 20 of the Wealth-tax Act, 1957, and analysed the phrase "partition ... in definite portions" as interpreted in authorities such as Gordhandas T. Mangaldas and related cases. The cited jurisprudence indicates that "definite portions" implies a physical division of property rather than mere division of interest.
  4. The court considered whether Section 20 is a charging provision or only a machinery provision in pari materia with Section 25A. It reviewed authorities (including decisions that characterised Section 25A as a machinery section) and the scheme of the Wealth-tax Act: the court observed the Wealth-tax Act creates liability based on net wealth ascertained on the relevant valuation date (the last date of the previous year).
  5. The court evaluated the arguments that (a) subsection 5(1)(ii) of the Wealth-tax Act exempts coparcenary interests in a way that would prevent assessment of former HUF properties, and (b) that Section 20(1) authorises assessment even where disruption predates the valuation date. The court rejected the first argument, reasoning that after an unequivocal expression of intention to separate under Hindu law the coparcenary interest ceases and the exemption (5(1)(ii)) would not bar assessment in the hands of the erstwhile members as the coparcenary has ended. The court rejected the second argument as well, observing that the specific provision in Section 20 about assessments "including the year relevant to the previous year in which the partition has taken place" applies to the special circumstance where partition takes place on the last day of the previous year and does not indicate a power to assess families that had ceased to be joint prior to the relevant valuation date.
  6. On balance, the court concluded that Section 20 of the Wealth-tax Act is in pari materia with Section 25A of the Income-tax Act and must be treated as a machinery section. Therefore Section 20 applies where, at the time the liability to pay wealth-tax arose (the relevant valuation date), the family was joint but had disrupted by the time of assessment. Section 20 does not permit assessment of a family that had ceased to be a HUF prior to the relevant valuation date according to Hindu law.
  7. Applying that conclusion to the facts: because the preliminary decree (and suit) occurred long prior to the relevant valuation date and this family had never been previously assessed under the Wealth-tax Act as a Hindu undivided family, the court held that assessment on the HUF under Section 20 could not be made in this case.

Holding and Implications

Holding: The assessment on the Hindu undivided family under Section 20 of the Wealth-tax Act cannot be sustained; the referred question is answered in the negative and in favour of the assessee.

Implications (direct effects on the parties and legal consequence as stated in the opinion):

  • The assessment made on the HUF for the assessment year 1957-58 cannot be upheld because the family had ceased to be a Hindu undivided family prior to the relevant valuation date and there was no prior assessment on the HUF under the Wealth-tax Act to justify continuation under subsection (2) of Section 20.
  • The court declared that Section 20 of the Wealth-tax Act is a machinery provision in pari materia with Section 25A of the Income-tax Act and does not empower assessment of a family that ceased to be joint before the relevant valuation date under Hindu law.
  • The Commissioner of Wealth-tax was ordered to pay the costs of this reference.
  • The opinion contains a statutory and doctrinal interpretation (that Section 20 is a machinery section and requires that the family have been joint at the relevant valuation date) but does not explicitly state that it is laying down or refusing to lay down a new precedent beyond its application to these facts; the direct effect is the invalidation of the assessment in this case and the costs order as recorded above.

End of summary — all content is drawn exclusively from the provided opinion text.

    Shri Srilal Bagri v. Commissioner Of Wealth Tax

    1. The following question under Section 27(1) of the Wealth-tax Act, 1957, has been referred to this court:

    "Whether, on the facts and circumstances of the case, and on a correct interpretation of Section 20 of the Wealth-tax Act, 1957, the assessment to wealth-tax for the assessment year 1957-58 has been validly made on Shri Srilal Bagri as the karta of the Hindu undivided family of M/s. Ricknath Shewkisseu ?"

    2. The question is directed against the validity of the wealth-tax assessment made on the assessee Hindu undivided family for the assessment year 1957-58. The Hindu undivided family of M/s. Ricknath Shewkissen was being assessed to income-tax in the status of a Hindu undivided family. It was a Hindu undivided family governed by the Mitakshara school of Hindu law. A suit for partition was filed in this court being Suit No. 322 of 1950, and the final decree was made on 26th March, 1957. The Hindu undivided family had contended in its income-tax assessments that the Hindu undivided family had been disrupted on the passing of the preliminary decree on the 26th June, 1950, and no assessments could be made on the Hindu undivided family after that date. This contention had been consistently rejected by the income-tax authorities. For the assessment years 1951-52 and 1952-53, the Tribunal held that as under the preliminary decree the properties had not been partitioned in definite portions the Hindu undivided family would be deemed to continue to exist under Section 25A of the Indian Income-tax Act, 1922. The Wealth-tax Act came into force on 1st April, 1957. The Wealth-tax Officer served a notice on the Hindu undivided family under Section 14(2) of the said Act. As no return was filed in response to the said notice the Wealth-tax Officer served a notice under Section 16(4) on Shri Srilal Bagri as the karta of the Hindu undivided family, Ricknath Shewkissen. It was contended by Sri Bagii before the Wealth-tax Officer that the Hindu undivided famliy had been dissolved by the preliminary decree passed in 1950, and as such no assessment could be made on it. The Wealth-tax Officer rejected it. The Wealth-tax Officer made an assessment on the Hindu undivided family determining the total wealth at Rs. 7,28,640. In so doing, the Wealth-tax Officer valued the house properties belonging to the Hindu undivided family at 20 times the net annual value.

    3. On appeal, the Appellate Assistant Commissioner rejected the assessee's contention that there could not be any assessment on the Hindu undivided family. He, therefore, upheld the order of the Wealth-tax Officer but reduced the amount of the total wealth by applying a multiple of 18 instead of 20.

    4. The assessee preferred a further appeal before the Tribunal where it was contended on behalf of the assessee that on the passing of the preliminary decree on 26th June, 1950, the Hindu undivided family was dissolved under law and ceased to exist and after that date no assessment could be made on it. It was further urged that Section 20 of the Wealth-tax Act was not a charging section and unless the case could be brought within the terms of Section 3 no charge could be legally imposed on the assessee. The Tribunal, however, held that the provisions of Section 3 of the said Act were subject to the other provisions contained in the Wealth-tax Act and the deeming provisions contained in Sub-section (2) of Section 20, according to the Tribunal, would make the Hindu undivided family liable to the charge of wealth-tax if the authorities were not satisfied that the properties had been partitioned into definite portions amongst the members of the family. The Tribunal, therefore, upheld the assessment made but reduced the valuation of the immovable properties by directing that the multiple of 16 was to be net annual value instead of the multiple of 18 applied by the Appellate Assistant Commissioner.

    5. Before us, at the hearing of this reference, learned counsel for the assessee urged the same contentions. It was submitted that, under the Hindu law, an unequivocal intention to separate disrupts the Hind undivided family. In this case in view of the preliminary decree dated 26th June, 1950, long prior to the relevant valuation date, there has been a disruption of the Hindu undivided family. Therefore, it was submitted that, as there was no unit as Hindu undivided family on the relevant valuation date, there could not be any assessment. It was then submitted that Section 20 of the Wealth-tax Act was not a charging section and would have no application in the facts and circumstances of this case. Learned counsel relied on some decisions and authorities some of which, so far as they are relevant for the purpose of this reference, will be considered later in this judgment.

    6. Mr. B. L. Pal, learned counsel for the revenue, first contended that Section 20 of the Wealth-tax Act is in pan materia with Section 25A of the Indian Income-tax Act, 1922, and until there is evidence that the properties which once belonged to a Hindu undivided family have been partitioned in "definite portions" amongst the members of the family, the family could be assessed as a Hindu undivided family by virtue of Section 20 of the Wealth-tax Act. Mr. Pal contended that a preliminary decree for partition might create a disruption of status as well as might declare the shares of the parties in the joint family properties but do not establish that the properties have been partitioned in "definite portions". Mr. Pal then contended that because of the scheme of the Wealth-tax Act, the effect and operation of Section 20 of the Wealth-tax Act was different from Section 25A of the Indian Income-tax Act, 1922. Mr. Pal submitted that, in view of Section 5(1)(ii) of the Wealth-tax Act, after the preliminary decree, until the final decree and until there is actual division in definite portions, the different members of the Hindu undivided family could not be taxed. So, according to him, under Section 20(1) of the Act the Wealth-tax Officer has been given the authority to tax the undivided family even in respect of the year in which the partition has taken place. Learned counsel urged that Section 3 of the Wealth-tax Act was subject to the provisions of Section 20 of the Act, and as there has been no evidence in this case that properties have been partitioned in definite portions amongst the members of the Hindu undivided family on the relevant valuation date, the assessment has been validly made. Counsel placed reliance on the decisions of Gordhandas T. Mangaldas v. Commissioner of Income-tax, [1943] 11 I.T.R. 183 (Bom.), Lakhmichand Baijnath v. Commissioner of Income-tax, , Joint Family of Udayan Chinubhai v. Commissioner of Income-tax, , B. Jyoti Bhushan Gupta v. Commissioner of Income-tax, [1950] 18 I.T.R. 777 (All.)., Sudhir Chandra Nawn v. Wealth-tax Officer Calcutta, [1968] 69 I.T.R. 897 (S.C.), and on Articles 346 and 347 of Mulla's Hindu Law (13th edition).

    7. A suit for partition was filed in this case, and a preliminary decree was passed on the 20th June, 1950, long prior to the relevant valuation date. The final decree was made on the 26th June, 1957, that is after the relevant valuation date. It is, therefore, necessary to consider what is the effect of the preliminary decree. The position has been thus stated in Article 213 of Mulla's Hindu Law, 13th edition, page 240 :

    "A Hindu coparcenary is a much narrower body than the joint family. It includes only those persons who acquire by birth an interest in the joint or coparcenary property."

    8. Then in article 216, Mulla's Hindu Law, 13th edition, page 244, it has been observed :

    "The essence of a coparcenary under the Mitakshara law is unity of ownership. The ownership of the coparcenary property is in the whole body of coparceners. According to the true notion of an undivided family governed by the Mitakshara law, no individual member of that family, whilst it remains undivided, can predicate, of the joint and undivided property, that he, that particular member, has a definite share, one-third or one-fourth. His interest is a fluctuating interest, capable of being enlarged by deaths In the family, and liable to be diminished by births in the family. It is only on a partition that he becomes entitled to a definite share. The most appropriate term to describe the interest of a coparcener in coparcenary property is ' undivided coparcenary interest'."

    9. In the case of Kawl Nain v. Budh Singh, [1917J L.R. 44 I.A. 159 the Privy Council has held that the institution of a suit for partition by a member of a joint Hindu family governed by Mitakshara is an unequivocal intimation of his intention to separate and there, consequently, is a severance of his joint status from the date when it is instituted. The Supreme Court has also reiterated the same position in the case of A, Raghavamma v. A. Chenchamma, . The Supreme Court has held in that case that it is settled law that a member of a joint Hindu family can bring about his separation in status by a definite and unequivocal declaration of his intention to separate himself from the family and enjoy his share in severalty. The position therefore is that, under Hindu law, in this case, after the institution of the suit for partition and passing of the preliminary decree there has been a disruption of the Hindu undivided family and there was no longer a joint Hindu family. But in cases where these sections apply, Section 25A of the Indian Income-tax Act, 1922, and Section 20(1) of the Wealth-tax Act, require the authorities to be satisfied

    "that the joint family property has been partitioned as a whole among the various members or groups of members in definite portions"
    . The aforesaid provision was considered in Gordhandas T. Mangaldas v. Commissioner of Income-tax. In the judgment in that case, at page 195 of the report. Beaumont C.J. observed:

    "Apart from authority, I should feel no doubt that Section 25A contemplates a physical division of the property. I think that the expression ' definite portions' indicates a physical division in which a member takes a particular house in which he can go and live, or a piece of land which he can cultivate, or which he can sell or mortgage, or takes particular ornaments which he can wear or dispose of, and that the expression ' definite portions' is not appropriate to describe an undivided share in property where all a particular member can claim is a proportion of the income, and a division of the corpus, but where he cannot claim any definite portion of the property."

    10. The learned Chief Justice further observed at page 196:

    "'Portion' seems to me the apt word for division of property, and 'share' for division of interest, and it is significant that ' portion' is used in Section 25A. No doubt the expression 'division in definite portions', will have to be construed with regard to the nature of the property concerned."

    11. Earlier, in the said judgment, in explaining the scheme of Section 25A, at page 194, the learned Chief Justice had observed;

    In construing the Act we have to remember that it is an all India Act, and that it is as applicable to Hindu families under the Dayabhaga system, as to those under the Mitakshara system. Under the Mitakshara system there are always two steps in a complete partition. There is, first, the division in interest, which may be brought about by agreement, by filing a suit, or by expressing an intention to divide, and there is the physical division of the property, which may, and often does, take place years after the division in interest. But under the Dayabhaga system the members of the joint family are divided in interest; they are in a position analogous to that of tenants-in-common, that is to say, they are originally in much the same position as the members of a Mitakshara family after the family has disrupted, and there has been a division in interest. I do not see what effect Section 25A can have on the property of a Dayabhaga joint family, if the opinion of the Income-tax Officer must be directed merely to a division in interest which always existed. It seems to me that Section 25A will have no effect at all on families under the Dayabhaga system, unless it is held to involve a physical division into definite portions,

    12. The aforesaid observation was quoted with approval by the Supreme Court in the case of Joint Family of Udayan Chinubhai v. Commissioner of Income-tax. In the case of B. Jyoti Bhushan Gupta v. Commissioner of Income-tax, it was held by the Allahabad High Court that in order to be entitled to an order under Section 25A of the Indian Income-tax Act, 1922, what is necessary is that joint family property should have been partitioned in definite portions. The breaking up of joint status was not enough. There the court held that when there was a preliminary decree the property belonging to the joint family was not partitioned in definite portions within the meaning of Section 25A of the Indian Income-tax Act, 1922. Therefore, the position is clear that, in cases where Section 25A of the Indian Income-tax Act, 1922, or Section 20(1) of the Wealth-tax Act, apply, the authorities must be satisfied that there has been a partition in definite portions and that satisfaction cannot be established merely by the fact that a preliminary decree has been passed. In this case, in view of the fact that the final partition decree was passed after the relevant valuation date and in view of the fact that there was no further evidence other than the passing of the preliminary decree, the wealth-tax authorities would have been justified in refusing to make an order under Section 20(1) of the Wealth-tax Act and in continuing to assess the joint family, if the provisions of the section were otherwise applicable.

    13. The important question, therefore, to consider in this case is whether, where in view of the disruption of the Hindu undivided family before the relevant valuation date, can there be an assessment of that family under the provisions of Section 20(1) of the Wealth-tax Act. At this stage it would be material to set out the provisions of Section 25A of the Indian Income-tax Act, 1922, as well as the provisions of Section 20 of the Wealth-tax Act. Section 25A of the Indian Income-tax Act, 1922, after amendments, is in the following terms :

    "(1) Where at the time of making an assessment under Section 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 there into 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 (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 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."

    14. Section 20 of the Wealth-tax Act is as follows :

    (1) Where, at the time of making an assessment, it is brought to the notice of the Wealth-tax Officer that a partition has taken place among the members of a Hindu undivided family, and the Wealth-tax Officer, after inquiry, is satisfied "that the joint family property has been partitioned as a whole among the various members or groups of members in definite portions", he shall record an order to that effect and shall make assessments on the net wealth of the undivided family as such for the assessment year or years, including the year relevant to the previous year in which the partition has taken place, if the partition has taken place on the last day of the previous year and each member or group of members shall be liable jointly and severally for the tax assessed on the net wealth of the joint family as such.

    (2) Where the Wealth-tax Officer is not so satisfied, he may, by order, declare that such family shall be deemed for the purposes of this Act to continue to be a Hindu undivided family liable to be assessed as such."

    15. The scheme of Section 25A of the Indian Income-tax Act, 1922, has been considered in various cases. The Judicial Committee in the case of Sir Sundar Singh Majithia v. Commissioner of Income-tax, [1942] 10 I.T.R. 457 (P.C.)., had observed that Section 25A of the Income-tax Act, 1922, was 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 the assessment. The Privy Council observed that the difficulty was more acute by reason of the provisions contained in Section 14(1) of the Indian Income-tax Act, 1922. In the case of Waman Satwappa Kalghatgi v. Commissioner of Income-tax, [1946] 14 I.T.R. 116 (Bom.) Section 25A of the Indian Income-tax Act was considered by the Bombay High Court. Kania, Actg. C. J., at page 125 of the report, observed as follows :

    "It must be remembered that Section 25A is a machinery section. It is not a charging section, much less can it be construed as altering the Hindu law as such."

    16. In the same case Chagla J. (as his Lordship then was) at page 128 observed :

    "Section 25A of the Indian Income-tax Act does not create any new rights or obligations nor does it in any way affect the provisions of the Hindu law. The section merely sets up a machinery by which the income of a joint Hindu family, which was in existence in the accounting year but has become defunct in the year of assessment, can be computed and calculated. In Hindu law where there is severance of joint status, the joint family ceases to exist as an entity although the properties are not partitioned."

    17. The Supreme Court in the case of Lakhmichand Baijnath v. Commissioner of Income-tax had occasion to consider the scheme of Section 25A of the Indian Income-tax Act. At page 421 of the report the Supreme Court observed :

    " That section was, it should be noted, introduced by the Indian Income-tax (Amendment) Act, 1928 (3 of 1928), for removing a defect which the working of the Act, as enacted in 1922 had disclosed. Under the provisions of the Act, as they stood prior to the amendment, when the assessee was an undivided family, no assessment could be made thereon if at the time of the assessment it had become divided, because at that point of time there was no undivided family in existence which could be taxed, though when the income was received in the year of account the family was joint. Nor could the individual members of the family be taxed in respect of such income as the same is exempt from tax under Section 14(1) of the Act."

    18. In the case of Kalwa Devadattam v. Union of India, the Supreme Court had again considered Section 25Aof the Indian Income-tax Act, 1922. At page 172 of the said report it has been observed :

    " Under Section 25A of the Income-tax Act, if at the date when the liability to pay tax arose there was in existence a joint family which has subsequently disrupted, the tax will still be assessed on the joint family."
    The Supreme Court further observed :

    " Section 25A merely sets up a machinery for avoiding difficulties encountered in levying and collecting tax, where since the income was received the property of the joint family has been partitioned in definite portions, while at the same time affirming the liability of such members or groups of members, jointly and severally to satisfy the total tax in respect of the income of the family as such. The section seeks to remove the bar imposed by Section 14(1) against recovery of tax from an individual member of a joint Hindu family in respect of any sum which he received as a member of the family and to ensure recovery of tax due, notwithstanding partition."

    19 In the case of Additional Income-tax Officer, Cuddapah v. A. Thimmayya, the Supreme Court held that the scheme of Section 25A was clear. A Hindu undivided family hitherto assessed in respect of its income would continue to be assessed in that status notwithstanding partition of the property among those members. But if a claim is raised at the time of the assessment that a partition has been effected the Income-tax Officer must make an enquiry after notice to all the members of the family and make an order that the family property has been partitioned in definite portions, if he is satisfied in that behalf. The court further observed that the Income-tax Officer was by law required still to make the assessment of the income of the Hindu undivided family as if no partition had taken place and then to apportion the total tax liability. In the case of Roshan Di Hatli v. Commissioner of Income-tax, [1968] 68 I.T.R. 177 (S C ) the Supreme Court held that where the claim made is that the joint status of a Hindu undivided family was dissolved before an order of assessment is made, the decision of the Supreme Court in the case of Kalwa Devadattam's case will have no application because the Supreme Court in that case was not called upon to interpret the expression " hitherto assessed as undivided " in Sub-sections (1) and (3) of Section 25A of the Indian Income-tax Act, 1922, and did not lay down the proposition that a family not previously assessed to tax may be assessed after partition in the status of the Hindu undivided family until an order under Section 25A was passed by the Income-tax Officer. It has to be observed however; that in Section 20 of the Wealth-tax Act, the expression " hitherto assessed as undivided " as in Section 25A of the Indian Income-tax Act, 197.2, does not appear.

    20. From the aforesaid judicial decisions it is mainfest therefore that Section 20 of the Wealth-tax Act, if it is in pari materia with Section 25A of the Indian Income-tax Act, 1922, then it is only a machinery section and not a charging section. In that case Section 20 of the Wealth-tax Act will only have application in respect of any year in which at the time of the accrual of liability, that is to say, at the time of the relevant valuation date, the family was joint but has disrupted at the time when the assessment was being made. It was, therefore, contended by counsel on behalf of the revenue, that though similar language has been used, in view of certain provisions of Section 20 of the Wealth-tax Act, as well as the scheme of the Wealth-tax Act, the operation and effect of Section 20 of the Wealth-tax Act is different from Section 25A of the Indian Income-tax Act, 1922. The said contention was based mainly on two grounds. It was contended that in case there is disruption of the joint status but there is no partition of the property in definite portions the individual members of the erstwhile Hindu undivided family cannot be subjected to wealth-tax in respect of the said property in view of Section 5(1)(ii) of the Wealth-tax Act. Sub-clause (ii) of Section 5(1) of the Wealth-tax Act exempts the interest of the assessee " in the coparcenary property of any Hindu undivided family of which he is a member". We are unable to accept this contention. In view of the position of Hindu law discussed above, it is apparent that after the unequivocal expression of intention to separate the individual member of the erstwhile Hindu undivided family will have no interest in the " coparcenary property of the Hindu undivided family of which he is a member." The family is disrupted after the expression of intention to separate and the coparcenary comes to an end. Therefore, Sub-clause (ii) of Section 5(1) of the Wealth-tax Act would be no bar for assess-ment in respect of the properties in the hands of the erstwhile members of the Hindu undivided family even though the properties have not yet been divided amongst the members in definite portions. It was then contended that Sub-section (1) of Section 20 of the Wealth-tax Act authorises the Wealth-tax Officer to make an assessment on the undivided family for the assessment year including the year relevant to the previous year in which the partition has taken place. It was contended by learned counsel for the revenue, that was an indication that the section empowers the Wealth-tax Officer to make an assessment in case of a Hindu undivided family as such even though prior to the relevant valuation date there has been disruption of the Hindu undivided family, if the conditions laid down in Section 20(1) of the Wealth-tax Act are satisfied. It has to be noted, however, that power or authority has been given to the Wealth-tax Officer to make the assessment on the Hindu undivided family as such including the year relevant to the previous year in which the partition has taken place, provided only, if the partition takes place on the last date of the previous year. This appears to be a significant factor. Under the scheme of the Wealth-tax Act liability arises on the net wealth of an assessee on the relevant valuation date. The relevant valuation date is the last date of the previous year. So if, on that last date a partition takes place, then what is to happen. The Act provides that, in that case, if the conditions of Section 20 are satisfied the Wealth-tax Officer would make an assessment on the Hindu undivided family in respect of the property as belonging to the Hindu undivided family. That provision in the section, in our opinion, is no indication of the proposition that by these provisions authority was given to the Wealth-tax Officer to tax a Hindu undivided family as such if before the accrual of liability the family had ceased to remain joint under the provisions of Hindu law.

    21. We are, therefore, of the opinion that Section 20 of the Wealth-tax Act is in pari materia with Section 25A of the Indian Income-tax Act, 1922. The difference in language in Section 20 of the Wealth-tax Act has been necessitated due to the scheme of the Wealth-tax Act as well as the fact that this section was introduced in the main Act itself and was not introduced by an Amending Act as was done in the case of Section 25A of the Indian Income-tax Act, 1922. In that view of the matter we must hold that Section 20 of the Wealth-tax Act is a machinery section directed towards assessment, where at the time the liability to pay wealth-tax arose, the family was joint, but has disrupted at the time of the assessment. The section does not empower assessment of a Hindu undivided family which has ceased to be a Hindu undivided family prior to the relevant valuation date according to Hindu law. In this case, there was no prior assessment on this Hindu undivided family, and as such there is no question of this family being continued to be liable to be assessed as such under Sub-section (2) of Section 20 of the Wealth-tax Act. Therefore, in view of the fact that the preliminary decree was passed long prior to the relevant valuation date and in view of the fact that this family was never assessed as a Hindu undivided family under the Wealth-tax Act in the facts and circumstances of this case under Section 20 of the Wealth-tax Act, the assessment cannot be made on this Hindu undivided family. The question referred to this court must, therefore, be answered in the negative and in favour of the assessed. The Commissioner of Wealth-tax will pay the costs of this reference.

    Sankar Prasad Mitra, J.

    22. I agree.

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    Comments

    Shri Srilal Bagri v. Commissioner Of Wealth Tax
    (May 16, 1969)