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L. N. Gadodia & Co. v. Commissioner Of Income Tax

Punjab & Haryana High Court

May 5, 1958

Judgment

Subsequent
References

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Factual and Procedural Background

This reference arises from the income-tax assessment for the assessment year 1943-44 concerning Messrs. L. N. Gadodia & Co., of Delhi. The central factual matrix is as follows (stated only as in the opinion): Seth L. N. Gadodia (often assessed in his individual name) had an adopted son, Ram Gopal, who attained majority in November 1938. A dispute arose whether the assessee should be taxed as an individual, as a Hindu undivided family (HUF) comprising L. N. Gadodia and his adopted son, or as a partnership firm consisting of father and son.

The High Court at Lahore had decided in May 1943 that the taxpayer was a HUF. For earlier years (assessment year 1941-42 and initially for 1942-43) registration of a partnership was refused; eventually the partnership was recognised for 1942-43 by a reference decision on 24 September 1951. For the year 1943-44 the Income-tax Officer issued an assessment notice in the name "L. N. Gadodia & Co." (apparently addressed to Seth L. N. Gadodia as an individual) but after rejecting an application under section 26A for registration of the partnership he completed the assessment treating the assessee as a Hindu undivided family.

Two appeals were then filed simultaneously by the same parties: one under section 26A against refusal to register the firm, and a second against the assessment (challenging the status and the assessment itself). The Appellate Assistant Commissioner heard both appeals together and on 29 February 1952 directed registration of the firm for the assessment year 1943-44 and granted certain relief on the merits.

The assessee appealed to the Appellate Tribunal. The Department raised a preliminary objection before the Tribunal that the appeals were not properly brought because the assessment had been made against a HUF and an appeal could only be filed by the "assessee" as defined (i.e., the person by whom income-tax is payable). The Tribunal sustained that objection, held there was no proper appeal before the Appellate Assistant Commissioner or itself, and dismissed the appeal. An application under section 66(1) was then made and the Tribunal stated the case and referred three specific questions of law to the Court.

Legal Issues Presented

Whether an appeal lay by the firm against the order made by the Income-tax Officer on March 20, 1948, assessing the Hindu undivided family?
If the answer to question No. 1 is in the negative, whether the Appellate Assistant Commissioner’s order was null and void?
If the answer to question No. 2 is in the affirmative, whether the appeal by the firm was liable to be dismissed by the Tribunal?

Arguments of the Parties

Appellant's Position

The parties who brought the appeals maintained that they constituted a partnership firm (L. N. Gadodia & Co., partners L. N. Gadodia and Ram Gopal Gadodia) and therefore the appeals (both the registration appeal under s.26A and the appeal against assessment) were properly brought on behalf of the firm.
In the appeal against the assessment they specifically challenged the characterization of the assessee (i.e., that they were assessed as a joint family rather than a firm) and sought recognition of the firm; the Appellate Assistant Commissioner ultimately recognised the firm and granted relief.

Department's Argument

The Department objected that an appeal to the Appellate Assistant Commissioner and onward to the Tribunal could only be filed by the "assessee" — a term interpreted (in the form cited in the opinion) to mean "a person by whom income-tax is payable". Since the Income-tax Officer’s assessment identified the assessee for 1943-44 as the Hindu undivided family styled L. N. Gadodia & Company, the Department contended that only the HUF could appeal and therefore an appeal filed in the name of the firm (or by a person described as a partner) was not a proper appeal.
The Department also relied on this point to challenge the validity of the subsequent reference under section 66(1), arguing that if there was no proper appeal by an assessee, there was no proper applicant to seek a reference.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court analysed the matter on the factual record and on the narrow legal question whether, on these facts, an appeal by the firm lay from the Income-tax Officer’s assessment. The court's reasoning proceeded through the following steps (stated strictly as in the opinion):

Identification of technicality and hardship: The court observed that a strict technical ruling against the appellants on the description used in the memorandum of appeal would produce substantial hardship — it could deny the assessee further relief on merits and could also undo relief already granted by the Appellate Assistant Commissioner (recognition as a registered firm and other concessions) merely because of the form of description in the memorandum of appeal.
Consideration of the Department's conduct: The court noted that the Department had not challenged on the merits the Appellate Assistant Commissioner’s recognition of the firm or the relief granted; it was surprising that the Department waited to raise the jurisdictional objection only after the assessee had appealed to the Tribunal for further relief. The court observed that had the assessee not appealed further, the concessions granted by the Appellate Assistant Commissioner would likely have remained unchallenged.
Examination of the assessment notice and state of contest: The court emphasised that the assessment notice had been issued simply in the name "L. N. Gadodia & Co." and that at the time of assessment there was a live controversy whether the taxpayer was a HUF or a partnership firm. Thus the two individuals (father and son) had filed two simultaneous appeals to preserve their claim to be a firm and to challenge the basis of assessment.
Substantive character of the appeal: The court reasoned that although the Income-tax Officer assessed the HUF, the appeals were brought on behalf of the two individuals whose interests were represented by the firm, and the appeals directly challenged the foundation of the assessment (the status as a family rather than a firm). On these particular facts the court concluded the appeal was in substance by the assessee (i.e., by the persons liable to tax) even though the description in the memorandum used the firm’s name.
Permissibility of correction and technicalities: The court observed that even if the appeal had been incorrectly described, any departmental objection at the hearing stage could have been met by permitting a corrective amendment; moreover, in the appeal against the refusal to register the firm there was no technical objection to an appeal in the firm’s name.
Resulting legal conclusion: Applying these facts to the legal question, the court held that on the peculiar facts of the case the appeal from the Income-tax Officer’s order was by the assessee and therefore an appeal by the firm lay. Because of this answer, the court found that the subsidiary questions (whether the Appellate Assistant Commissioner’s order was null and void and whether the Tribunal properly dismissed the appeal) did not arise for decision. The court also added that had there been no technical defect in description, the appeal to the Tribunal in the firm’s name would also have lain because the Appellate Assistant Commissioner had recognised the firm.

Holding and Implications

Holding:

The court answered the first referred question in the affirmative: on the peculiar facts of this case an appeal by the firm against the Income-tax Officer’s order assessing the Hindu undivided family did lie. Consequently, the second and third referred questions were rendered unnecessary and were not decided.

Implications and Immediate Consequences:

Direct effect on parties: The Court validated that the appeals as brought were effective on behalf of the assessee (the persons whose tax liability was in question) and therefore the Appellate Assistant Commissioner’s recognition of the firm and the relief granted were not invalidated on the technical ground relied upon by the Department.
On broader precedent: The opinion does not state that it sets a new general rule of law; it grounds its decision on the "peculiar facts of this case" and on considerations of substance over form, correction of technical defects, and the conduct of the Department. The court expressly framed its conclusion as fact-specific and observed that, in any event, if there had been no technical defect the appeal would have lain to the Tribunal because the Appellate Assistant Commissioner had recognised the firm.
Costs: The Commissioner of Income-tax was ordered to pay the assessee’s counsel fee of Rs. 250.

Additional notes from the opinion: Chief Justice Bhandari concurred ("I agree"). The reference was accordingly answered.

Show all summary ...

- The following question of law have been referred to us by the Income-tax Appellate Tribunal under section 66[1] of the Income-tax Act :

"(1) Whether an appeal lay an the firm against the order made by the Income-tax Officer on March 20, 1948, assessing the Hindu undivided family ?

(2) If the answer to question No. I is in the negative, whether the Appellant Assistant Commissioners order was null and void ?

(3) If the answer to question No. 2 is in the affirmative whether the appeal by the firm was liable to be dismissed by the Tribunal."

The case arise out of the income-tax assessment for the assessment year 1943-44 of Messrs. L. N. Gadodia & Co., of Delhi. The assessee has always gone under the name of Seth L. N. Gadodia and he was assessed as in individual. He had an adopted son named Ram Gopal who attained majority in November, 1938. About that time a dispute arose whether he should be assessed as an individual as an individual or as Hindu undivided family consisting of himself sand his adopted son. This was at last decided in his favour by the High Court at Lahore in May 1943. By this time it was already being claimed that the Hindu undivided family has been disrupted and that instead there was a partnership firm consisting of L. N. Gadodia and his son. The registration of this alleged partnership firm was refused in respect of the assessment year 1941-42. It was again refused in the first instance regarding the assessment year 1942-43 but ultimately, after disagreement among the members of the Delhi Bench of the Appellant Tribunal, it was held on a reference to the President on the 24th September, 1951, that the firm should be recognised for the assessment year 1942-43. When the assessment for the year 1943-44 came up a notice was issued by the Income-tax Officer to L. N., Gadodia & Company, no status being specified, along with the assessment form. An applicantion was under section 26A for the registration of the partnership firm of L. N. Gadodia and Ram Gopal Gadodia in equal shares. The Income-tax Officer dismissed this application and proceeded to assess the assessee as a Hindu undivided family.

Thereafter, two appeals were filed, the first under the section 26A against the order of the Income-tax rejecting the application for recognition of the disruption of the family and registration of the partnership, and the second against the assessment order itself, the first ground taken in the grounds appeal being that the Income-tax Officer had erred in assessing the appellants in the status of a Hindu undivided family instead of that of a registered firm. These two appeals were heards together and decided by the Appellant Assistant Commissioner on the 29th of February, 1952. In the view of the decision of the Appellant Tribunal regarding the assessment for the year 1942-43 the Appellant Assistant Commissioner accepted the petition as regards the assessment year 1943-44 and directed the Income-tax Officer to register the firm, and then proceeded to deal with the case on merits and granted some relief to the assessee.

The assessee was not satisfied with the decision of the Appellate Assistant Commissioner on all point and filed an appeal before the Appellant Tribunal. In this appeal a preliminary objection was raised by the representatives of the Department. This is based on the fact the although the assessee had been assessed by the Income-tax Officer as a Hindu undivided family, the appeal before the Appellate Assistant Commissioner was filed in the name of the firm L. N. Gododia & Co. through Ram Gopal Gadodia as a partner. It may also be mentioned that the appeal filed before the Tribunal was by the firm, this time through L. N. Gadodia as a partner. The objection taken was that an appeal before the Tribunal could only be filed under section 33 of the Income-tax Act by an assessee and since it was a Hindu undivided family which had been assessed by the Income-tax Officer no appeal could be filed by the so-called firm to the Appellate Assistant Commissioner and also no appeal could be filed by the so-called firm to the Appellate Tribunal. This contention found favour with the Tribunal, which found that there was no proper appeal either before the Appellate Assistant Commissioner or before itself, and the appeal was accordingly dismissed. An application was then made under section 66(1) on which the Tribunal has stated the case and framed the questions as stated above.

The preliminary objection has also been raised before us that there is no proper reference since the application under section 66(1) of the Act is also made by the firm and if there was no appeal before the Tribunal by an assessee there was no proper assessee to make an application for a reference under section 66(1). The fate of the preliminary objection however depends on the decision of the case as a whole.

The point raised is a highly technical one and it would certainly appear to involve great hardship on the assessee if he were not only to be denied any further relief to which he might be entitled without any hearing on the merits of his appeal by the Tribunal, but were also to be deprived of the relief granted to him by the Appellate Assistant Commissioner, including his recognition as a registered firm instead of a Hindu undivided family, simply on the ground that the appellants have not been correctly described in the memorandum of appeal preferred to the Appellate Assistant Commissioner. The hardship involved is practically great in view of the fact that the Department apparently did not think fit to challenge on the merits either the order of the Appellate Assistant Commissioner recognising the registered firm in the place of the Hindu undivided family or the order granting certain relief on the merits. It is also surprising that the Department, if it considered that the order of the Appellate Assistant Commissioner was without jurisdiction on the ground that there had been no appeal by the assessee, did not go to the Tribunal in appeal on this point, but instead waited until the assessee had filed an appeal to the Tribunal claiming further relief before raising the point. It would in fact seem that if the assessee had not gone in further appeal to the Tribunal he would have been left in enjoyment of the concessions granted to him by the Appellate Assistant Commissioner.

The argument on behalf of the Department is that an appeal lies to an Appellate Assistant Commissioner or from his order to the Tribunal only by an assessee and the definition of the term "assessee" which has since been amplified was, "assessee means a person by whom income-tax is payable". According to the assessment order of the Income-tax Officer income-tax was payable by the Hindu undivided family styled L. N. Gadodia & Company. Therefore, an appeal to the Appellate Assistant Commissioner could only be filed by the Hindu undivided family, and so the appeal filed by R. G. Gadodia in the name of the firm was no appeal.

This is certainly one way of looking at the matter. It is, however, clear that the notice for assessment was issued by the Income-tax Officer simply in the name of L. N. Gadodia & Co. and it was apparently issued to Seth L. N. Gadodia as an individual since it is admitted that at the time of the issue of the notice in May, 1943, the Income-tax Officer was unaware of the decision of the High Court at Lahore deciding the matter raised in 1938 and holding that L. N. Gadodia & Co. was a Hindu undivided family. However, the Income-tax Officer proceeded to complete the assessment on a Hindu undivided family after rejecting the application of L. N. Gadodia and R. G. Gadodia for registration of the assessee as a firm in which they were partners in equal shares. It is thus clear that at the time of the assessment it was a matter of contention whether the assessee was a Hindu undivided family or a partnership firm.

It would appear that the two individuals concerned were determined to maintain the position that they constituted a partnership firm and not a Hindu undivided family and, for this reason two appeals were filed simultaneously, one against the order refusing to register the firm and the other against the assessment, which, it was contended, was wrong inter alia because the assessee had been assessed as a joint family and not as a firm. It would thus seem that all possible trouble could have been avoided if in the memorandum of appeal against the assessment the appellant had been described as L. N. Gadodia & Company assessed as a Hindu undivided family but claiming to be a registered firm. In the appeal against the order of the Income-tax Officer refusing to recognise the firm I can still see nothing even technically wrong in the appeal being filed in the name of the firm. Moreover even when the appeal had been filed in the name of the firm, if the objection had been taken on behalf of the Department no doubt any correction which was thought to be necessary would have been permitted to be made then and there.

The question is whether the appeal before the Appellate Assistant Commissioner was by an assessee or in other words by a person liable to pay income-tax. Whether L. N. Gadodia & Company was a joint family or a firm its individual members were only two members, the father and the son, and it cannot possibly be denied that the appeal was on their behalf. In the appeal they not only challenged the assessment but also the basis for it, namely, whether they should be assessed as a family or a firm, and the net result was that the firm was recognised and they were assessed as partners. On these facts I am prepared to hold that the appeal from the order of the Income-tax Officer was by the assessee and that on the peculiar facts of this case the appeal by the firm lay, and I would answer the first question in the affirmative. Thus the second and third questions do not arise though I would add that if there had been no technical defect in the description of the appellants in the appeal before the Appellate Assistant Commissioner, the appeal in the name of the firm would have lain to the Tribunal, since although the assessee was assessed as an undivided family by the Income-tax Officer, its status as a firm was recognised by the Appellate Assistant Commissioner. The Commissioner of Income-tax will bear the cost of the assessee, counsels fee Rs. 250.

BHANDARI, C.J. - I agree.

Reference answered accordingly.